Baby Boomer Businesses: Is There a Mass Sell-Off on the Horizon?

Nearly every business owner has heard that timing is important when selling a business. And, certainly, it is well documented that the timing of external factors – like changes in the economy, availability of funding, and the rise and fall of interest and tax rates – can have a profound effect on the value and salability of a business.

We are adding one other item to the list of external factors – the impact of Baby Boomers. As they reach retirement age, we are now asking, “How will the Baby Boomer generation impact the sale of private businesses?”

One theory, based upon the simple law of supply and demand, is that an influx of businesses for sale by retiring Baby Boomers could result in an oversupply of businesses on the market, which could in turn lead to deterioration in business values.

Baby Boomers are defined as the group of people born between 1946 and 1964. This group of 77 million Americans accounts for 28% of the population, according to Baby Boomer Headquarters, http://www.bbhq.com/.

Private business owners will be among the ranks of retiring Baby Boomers. In the 1960s and 70s, many Baby Boomers started their own businesses. As a result of the aging business owner population, roughly 40% of the family-owned businesses in the United States are expected to experience a leadership change in the next five years

Many studies point to the fact that many of these owners hope to sell their businesses on the open market in hopes of funding their retirement and enjoying the benefits of a lifetime of hard work.

Baby Boomer business owners may find that selling their company at the right time could be a means to obtain the funds they need to maintain a comfortable lifestyle during their retirement years. Their need to liquefy assets could be underscored by the fact that Baby Boomers are considered a generation of poor savers. Research magazine reports that the majority of Baby Boomers will not have sufficient funds to retire when they hit the traditional retirement age of 65.

With their retirement resources often riding on a business sale, Baby Boomer business owners are encouraged to explore the factors that may signal the best time to sell their company. An uncertain economy, low interest rates, and favorable capital gains tax rates have prompted many business owners to cash out.

The sale process typically includes financial appraisal and assessment of value, marketing the business, locating a prospective buyer, structuring the transaction, managing the buyer due diligence, negotiating and closing the transaction and post-close transaction. Despite the importance of having in place a clear-cut plan when deciding to sell, according to a recent survey of small business owners by M&A Today, 65% do not know what their company is worth and 85% have no exit strategy. Worse yet, many business owners fix a price in their mind and may directly or indirectly communicate that price to potential buyers and competitors.

Almost $5 trillion in liquidity is expected to be created by 2015 as aging Baby Boomers transition out of their closely held businesses to retirement. The three most common exit strategies are sale of the company, recapitalization, or ESOP. The potential rewards of a successful business sale are great, but this complex and often time-consuming process should be expertly managed.