BABY BOOMER SELL OFF?

June 3, 2015

 According to the U.S. Census Bureau, there were 27.9M small businesses (under 500 EE’s) making up 99.7% of U.S. employer firms in 2010.  These small businesses account for 67% of net new jobs created between 1993 and 2011 and account for 49.2% of private-sector employment.  The overwhelming majority of these companies are sole proprietors or “mom and pop” organizations.  According to an international Data Corporation report, there are approximately 2M businesses in the U.S. that generate between $1M to $100M in annual revenues with 90% falling below $5M in annual revenues.

 

These “small company” statistics don’t get much attention against the backdrop of the S&P 500 or Dow Jones Industrial average (DJIA).  We seldom reflect that the DJIA reporting we hear on the daily stock market recap represents only 30 behemoth companies.  The reality of the size, scope, and critical importance our small businesses play in our economy is often masked by mass media headlines highlighting the top 1% of businesses. 

 

Small and middle market business ownership is a noble profession.  Owners, and their executive leadership, increase the sum of human welfare by creating jobs, unlocking potential, innovating markets, paying taxes, and expanding our economy.

 

According to the Bureau of Labor Statistics, about a third of businesses survive 10 years or more. Many of today’s 10+ year-old small businesses are owned by baby boomers.  These owners are now between 51 and 69 years of age and now seeking to monetize their years of investment and deferred gratification.  While the boomers control approximately 80% of the personal financial assets in the U.S., they still have a significant portion of their wealth and liquidity locked inside of their business. 

 

In our experience, it is a universal primary objective for boomers to attain personal financial freedom by exiting their business on their own terms.  A boomer’s early success, or recent rapid growth, however, does not always equate to exit value.  Value is often obscured by an over reliance on the business owner and a myriad of issues including: lack of corporate governance, customer diversification, internal systems, strategic planning, execution, and organizational culture. Growth often yields undesired consequences of reduced cash flow, highly concentrated customers, increased churn, decreased accountability, decreased customer satisfaction, and a rise of quality assurance issues.  

 

It is projected that by 2030, 1 in 5 Americans will be older than 65.  The average life expectancy of someone 65 today is an additional 17 years.  With a common retirement age of 67, this leaves an average of 17 years of escalating expenses to cover.  With increasing lifespans, rising cost of living, and the strain an influx of retirees exercising social security and Medicare benefits will cause, proper advance planning for business exit has never been so important. 

 

The sale of a business is typically the largest payday in the life of a business owner.  With the aging boomer population, financial markets on the uptick, banks loosening lending, and cash on the sidelines there will be a significant spike in small business sales over the next 10 years.  In this tight economy, organic growth takes time and companies looking to grow quickly will look to acquisitions to vertically integrate, develop new channels, expand value propositions, and grow their market share. 

 

The projected influx of supply of available businesses for sale will likely create a buyer’s market.  Boomers that have developed a deliberate exit plan, proactively created transferrable value, and intentionally lessened the reliance on themselves will enjoy the flexibility a superior valuation affords.  Those that have not properly planned run a greater risk in becoming further commoditized with little options outside of a planned (or unplanned) liquidation. 

 

As Benjamin Franklin said, “Nothing is certain except death and taxes.”  He may have missed another certainty in that all business owners will eventually exit their business one day.  In these opportunistic times, don’t allow death or unplanned liquidation to be the framework of your exit. 

 

Contact us at info@flvcp.com to learn more helping you achieve financial freedom, create a sustainable business legacy, and exit on your own terms.

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