Baby Boomers and Business Transition Growth: What to Expect in the Next Decade and How to Prepare for the Sale
At Viking Mergers & Acquisitions, we have been assisting business owners located in the Southeast United States in planning their business acquisition exit strategies for over 22 years. We have seen hundreds of business owners pass on their businesses to successors because of numerous reasons, the most common being burnout and/or retirement. Business owners are always curious to know – what does the “owner readiness” look like in the next decade? What are the trends associated with business succession and exit planning? When is a good time to sell a business and how does the M&A market look in the future? What do I need to do to improve my business and why is it so important to sell sooner than later? As baby boomer business owners are transitioning out, the younger generation is moving in – and that is all expected to happen within the next 10 to 15 years. Successful business transitions are the wheels that move our economy, and it is important to know the complexity associated with selling your business.
What to Expect
According to the Exit Planning Institute, there are roughly six million operating privately held companies in the United States. According to US census data, 63% of these are owned by millions of baby boomers who range anywhere from 55-73 years old. We can expect business acquisitions to grow in the next decade along with demand for intermediaries/advisors like us here at Viking. The more baby boomers that there are who are ready to sell their business, the more business advisors will be needed in facilitating acquisitions. Business owners that fall between the ages above will have to sell their business soon in order to prepare adequately for retirement. Almost all business owners that fall into this category have most of their assets positioned in the business itself. This means that now is the essential time to consider selling or at least put together a plan if you are retiring within the next 10 years.
How to Prepare
Now that you have an idea of what to expect in terms of business acquisitions in the next decade, it is time to understand what is needed in order to properly sell your business. Preparing for the sale correctly is imperative in order to secure the highest price for the business that you worked so hard to grow and maintain. A team of trusted advisors to take the lead in your exit will ensure that you maximize your transferrable business value while planning for a financially comfortable lifestyle. It is crucial for business owners to think about their future and the future of their families after the sale is complete. A trusted board of business succession advisors can assist you in planning for the sale of your company and how you will handle the transition once it is finished. Working closely with your accountant, financial planner, your attorney, and trusted business intermediary while having policies and procedures in place can significantly improve the chances of selling your business compared to going at it alone. Not only can they make it easier, but they can also help secure the highest price possible. We like to compare a team of trusted business advisors to an instrumental orchestra. A conductor cannot properly direct the orchestra without the instruments. The piece that is being conducted is not complete without the violinist, the pianist, the flutist, etc. Together they can perform the instrumental piece. One missing advisor or preparation could influence the failure of the deal.
Business Intermediaries – What We Recommend
Viking M&A recommends consistent accounting practices with a goal of maximizing shareholder wealth, similar to public companies. The reason is that for every dollar you think you are saving in taxes may cost you an exponential multiple in business value. Preparing your business for a sale now could help reduce tax consequences later down the road. Having an organizational chart, job descriptions, employee handbook documenting benefits, vacation, sick days, etc. are helpful to a new owner and demonstrates that you spent some time working on the business and not just in it. Do you have your vision, mission and core values written and does that drive your decision to hire and fire? Do you have contracts, leases, and agreements that are transferable? What are you retiring to versus retiring from? Know your why! There are many other considerations, but this is a start.
Viking’s fears consist of
- A business owner will decide to sell their business when it is too late, to the point where it is not salable. Timing is crucial. Do you want generational wealth?
- A business owner lets the business define his/her identity. Don’t break the key off in the lock on the way out as you drive your business into the ground and have nothing to sell. You want to sell when things are going well. As soon as the business starts declining due to your loss of ability to run the company, the buyers and banks are wondering where the bottom is and aren’t prepared to pay full price.
- A business owner should consider their business an investment; just like stocks, bonds, mutual funds, etc. Transitioning equity into cash at the right time with the right advisor’s help can make a tremendous difference.
Most business owners are so busy in the day-to-day duties of the business that they do not think about the importance of selling. The fact of the matter is- selling now could significantly improve your chances of being financially stable in the future. If you’re approaching the retirement mark and feel that it might be the best time to find a successor for your business, you’re not alone. There are millions of business owners just like you that are seeking advice in order to adequately prepare. Viking M&A can assist you in preparing for the sale of your business. Contact us today for a free valuation and consultation.