Aging US Business Owners
As America’s population gets older, many businesses will change hands in the coming years. Just as the workforce is aging, the ranks of business owners are grayer on average. A lot of owners are mulling how and when to sell.
Businesses will be changing hands soon
Note that the basic demographic situation that a quarter of business owners are over 60, a figure that will grow once all of the members of the Baby Boom Generation reach retirement age. Lots of them intend to sell relatively soon; as many as half aim to so in the next five years according to one recent survey of business owners.
But, relatively few have an Exit Plan in place. Just running a business is hard work. Most owners are too busy managing the day-to-day operations to work out the details of how and when they’ll sell. Unforeseen events can complicate things, such as an untimely death, a divorce that splits ownership of the business, a sudden economic downturn, etc. It pays to plan so make decisions now.
Here are some key issues to think through:
- What’s your timetable for selling? One exit adviser recommends five years of planning to ensure the best chance of a successful sale.
- Do you need the cash up front? If so, a sale to an outside buyer makes sense If not, a gradual sale to top employees or family members in a “rent to own” process could be suitable, though you risk the buyers’ running into financial problems later on.
- Do you have certain values you care about, such as maintaining the culture, reputation or location of the business? Those take more time and planning to protect.
- How do you value the business? Small businesses generally sell for 40% to 80% of annual revenue or two to three times cash flow and even higher in the case of larger firms. Remember that the firm might not be worth as much without your personal expertise. That’s also a reason to delegate more responsibility to subordinates who will be there after you leave: you’ll get a better price if the buyer has confidence in top lieutenants.
Some tips for prospective buyers eyeing the many prizes they might acquire:
- Scout out potential opportunities online at sites such as bizbuysell.com.
- Visit the business as an anonymous customer to see how it serves its clients.
- Focus on top-line sales. The bottom line may show losses for ta reasons.
- Figure on putting down 10-20% of the sale price. Conserve as much cash as possible. Consider asking for some seller financing to gauge the owner’s confidence. Loans backed by the Small Business Administration carry lower rates. To get one, you’ll need to put 10% down. Repayment runs seven to 10 years. Loans up to $5 Million qualify.
- One obvious but overlooked consideration: You need to like the type of work the business does. It’s too hard to make a go of it otherwise, as any owner will tell you.
It’s an ever changing world for US Businesses, but even more so in the coming years. Be ready for the change and have an Exit Plan. If you need assistance with your business in any way, contact Parker Associates and PTC Computer Solutions. We are ready to help.
David WB Parker is a principal of Parker Associates of Jacksonville, Florida, marketing consultants to the real estate industry; President of PTC Computer Solutions, IT Specialist, and an active real estate sales professional with Barclay’s Real Estate Group based in Jacksonville, FL. He is also a principal partner of the REMA Team of professionals. He can be reached at 904-607-8763 or via email firstname.lastname@example.org.