Business for Sale! Baby-Boom Exit May Bring Glut

More and more aging business owners are thinking of retiring. That means plenty of opportunity—and risk.

By Joan Pryde, Senior Tax Editor, the Kiplinger letters - October 3, 2006

Look for a spike in sales of small and midsize businesses by the end of this decade, as the oldest baby boomers approach retirement age. More than 75% of middle-market business owners anticipate selling within a few years, according to a survey by GW Equity and the University of Dallas Graduate School of Management. Age was the reason given by more than half of the businesses, all of which had annual revenues between $1 million and $150 million.

Savvy business owners who want out will start getting ready soon because it can take a year or more just to get a business ready for sale—and still longer to find a buyer and transition out of the company. Industry experts say it's best to do the advance work early, and then time your sale to market conditions, rather than let your emotions dictate when to let go.

Too many business owners get hurt because they don't realize the importance of advance planning, says Russell Brown, a business broker and the owner of BusinessBookPress.com. For example, Brown says, if you rent space, you'll want to have a long-term lease in place when buyers come to call. If you wait until you're ready to sell to renegotiate your lease, your landlord will probably prefer to wait until the new owner arrives, in order to jack up the rent—a prospect that potential buyers won't relish and that will lower your company's sale price.

What other preplanning must you do before bringing your business to market? Ron Chernak, president of First Business Brokers Ltd. in Colorado Springs, Colo., says to make sure your financial house is in order, as buyers will pay a premium for clean financial statements. And it's important to show buyers that you have a diversified customer base as well as second-level management that can step in and run things after you bow out, unless you're willing to remain for an extended transition period.

The easiest businesses to sell will be on the low-tech side, according to Fred Jager, president of Hunter Wise Financial Group LLC in Irvine, Calif. Investors will gravitate toward businesses they understand, and they will be wary of that super-high-tech company making the latest and trendiest gadget that might be obsolete in a year or two.