With baby boomer business owners retiring at an accelerating rate, the number of businesses for sale is rising and, as a result, in some cases prices are dropping. That's great news for buyers. Here are the implications for sellers.
Baby boomers make up the largest segment of the U.S. population. With nearly 78 million baby boomers approaching retirement, the implications for small businesses are astounding. But one of the big questions on everyone's mind is how the baby boomers' golden years will impact the business-for-sale marketplace.
In previous years, there has been speculation that retirement could drive large numbers of baby boomers into small business. The theory was that once they retired from their primary careers, baby boomers could afford the time and resources for entrepreneurial pursuits that incorporate their business experience and personal passions.
While this has happened to a certain degree, many of the baby boomers that retired into small business have found it to be more difficult than they anticipated. Long hours and limited staff resources took their toll, forcing boomer business owners to exit their fledgling companies sooner than they had hoped.
Yet there are still an incredible number of businesses that are currently owned by baby boomers. In the next ten to fifteen years, it is expected that more than eight million privately-owned U.S. companies will be sold. When the time comes for the owners to exit these companies, they will face several options.
Some may choose to retain ownership of the business throughout their retirement, but play a passive role in day-to-day operations. This is more difficult than it sounds since most small business owners have the bulk of their savings wrapped up in their companies and need to sell their companies to pay for their retirement goals.
Other boomer business owners may try to transfer the company to the next generation. But in order for this to work, a number of conditions need to be met. The next generation (i.e. the kids) have to be interested in owning and continuing the family business. However, even if they are interested, they still need to be qualified to make it work. Successful family transitions require years of planning and preparation, so unless the retiring business owner has a transition plan in place, a next generation sale may be out of the question.
It seems clear that the vast majority of retiring boomers will sell their companies on the open market. And if the market suddenly becomes glutted with boomer-owned businesses, that probably spells bad news for sellers.
To minimize the potential impact of a glutted business marketplace, sellers should consider the possibility of selling sooner rather than later. If retirement is looming and anticipate selling your company in the next ten years, you will no doubt get a better price if you beat the rush.