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Business model E-myth Entrepreneurs Leadership

Selling your boomer business

I recently received a note from someone who read “Boomer Business For Sale“. They had some questions about different aspects of selling their business, and I suspect they aren’t alone, so let’s address them here. The premise of the original discussion was that there are roughly 60,000 boomers who are getting ready to retire who are also business owners, and that either someone is going to buy those businesses, or they’re going to disappear. I see this happen with increasing frequency and find it such a waste. These businesses aren’t disappearing because they’re unprofitable. They’re disappearing because they can’t find a new owner.

Recently I saw where a beloved 57 year old butcher shop in Missoula closed. A butcher shop doesn’t stay open that long if it isn’t doing things right – yet… no buyer.

If substantial numbers of these boomer owned businesses disappear, it’ll have an impact on the towns where they live, the people they employ, the people whose businesses they buy supplies and equipment from, the accountants, bankers and attorneys they use – and the revenue that feeds in other businesses.

Ideally, we (as a whole) would benefit if we could reduce the number of businesses that close rather than changing hands. Ideally, we (as a whole) would benefit if we could reduce the number of businesses that close rather than changing hands.

How do I find a buyer?

One of the questions I was asked was about how to market the business that’s for sale. In a word, carefully. Your first thought might be a business broker. In my experience, they should be your last resort because most of them put too many obstacles between you and the prospective buyer.

For starters, don’t put a “For Sale” sign out front. More often than not, tells people “We’re about to close”, which will give some customers the idea that they should look elsewhere before it’s too late. That’s not going to help you in the short term, and it’s not going to help whoever buys your business. If you find a buyer, they’re going to have to win some portion of that business back – and if you have a piece of the future, you’d prefer they didn’t have to do that.

You’ll encounter three types of prospective buyers. Some are buying a job and an income. While that’s fine, many of them will have little / no experience running a business. They will almost certainly want you to owner finance. While there’s nothing wrong with owner financing (in fact, it’s a great way to get your asking price), you’re going to be more concerned offering financing to someone who doesn’t know what it feels like to cut payroll checks, lose sleep over business issues, and deal with grumpy customers – while still keeping them

Other buyers are typically looking for an investment. Not private equity, but experienced business people who want to add to their business portfolio. They own businesses for a living.

Finally, there are competitors and complimentary businesses (the ones two or three towns down the road are good candidates). An in-town candidate is OK, but revealing your sale plans to an in-town competitor can create problems.

Don’t forget competitors

Of all the competitors and complimentary businesses in your market, which of them deserve your business? Which of them are good enough to take your business on and not embarrass you? Why? If you see your best customer in the grocery store six months from now, are you going to be happy to see them, or are you going to turn and go down another aisle?

If you sell to a competitor, you want to sell to the one who isn’t going to make you change aisles. Even though the check is cleared and you’re completely uninvolved in the business, you’re part of that community, and you don’t want to be embarrassed by the buyer’s behavior.

I’d look first at investors, as well as competitors who do what you do, but not in your community. Maybe they have a similar service three towns down the road and they’re looking to grow their business. You could have an intermediary (banker/lawyer) contact them to keep your identity under wraps at first. They don’t need to know whose business it is to examine your financials – which they should ask for very early in the conversation.

Training the new owner

If you’re actively working in the business, you’ll have to train someone to take over that job. In a business where the work is physically demanding, you might be tempted to limit candidates to people who are physically capable and willing to take on that work. If you do that, it’ll reduce the size of your pool of potential buyers.

Unless you are selling to a competitor who doesn’t need to be trained, training will come to come at the worst possible time. You’ve mentally decided to get out (and were there for months before selling), and now, you’re obligated to train this new person. Your sale isn’t really, truly final until that work is done.

The new owner may not even know that they like it yet. Perhaps they’ve done it for someone else for 15 years, and they think that’s what they want to do but they don’t know until they actually run / own it. What if it takes longer than expected? If you walk away, it could damage the business. If you have a fee for additional training in your sales deal (you should), then that still commits you to even more time.

This all started because you were ready to retire. Now you’re spending time training this person and may have to silence the “I should have kept it”, “They don’t get it”. “Will they ever learn?” thoughts. Prepare for this.

Are you really ready to retire?

The idea is that this group of 60,000 Boomer business owners is ready to retire. Are you really? Do you know what’s going to occupy your time once you cash out?

I’ve had conversations with a number of people who retired and were thrilled that they fished, hiked, and golfed every day for three months.. until they got bored. Some people don’t get bored with it. Some might cut back to every other day. Still, some are not cut out for 100% leisure.

A better question might be “Are you ready to sell, or is this about getting out of working every day?” In a business where the work is physical, it’s easy to understand the desire to back off at some point. Our bodies start telling us that they aren’t 29 anymore. Maybe climbing ladders isn’t as easy or fun as it used to be.

You don’t have to go from “I own it / work in it every day” to “I have nothing to do with it.” There are other choices.

Maybe a competitor is better?

Selling to a competitor or complimentary business should be an easier exit. Someone who is already successful and in a similar business is more likely to be able to organize the resources needed to buy you out since they’re already successful and have clientele in that market.

Somebody who owns a competitive / complimentary business is more likely to stick with it. They know what they’re getting. So if you do get to a point where you agree for at least a partial owner finance, a competitor / complimentary business is a better choice.

Don’t get me wrong, there are highly motivated, sharp people out there who are looking for an income and a job, and they’ll have bigger dreams than just buying a job. Maybe they’re going to buy yours first, then buy two or three more, and maybe make an empire out of it. You’ll know when you meet one of them – and you’ll know who is real and who is blowing smoke.

The real pain of selling

If you ask business owners who’ve sold their business, they’ll probably mention that due diligence was a pain. Someone doing proper research isn’t intentionally making it a hassle, but it’s a lot of preparation to satisfy due diligence questions. Be prepared for that before you say “It’s for sale.” Ask your banker, attorney & someone you know who has sold / bought a business recently about the processes. Prepare in advance, as it’s not fun to do that work under deadline when you have a buyer at the door, checkbook in hand. The last thing you really need is to feel the pressure of “I’ve got to produce all these documents and all these numbers under a deadline before they go buy something else.”

All this information should be available if your managerial accounting & business metrics are under control, but they usually aren’t.

Consider being an owner

This whole selling a business thing is complicated, isn’t it? Now you know why a lot of businesses simply close. Selling a business is work. It’s usually worth it, but it isn’t easy. And yet, it’s possible to avoid a fair bit of the work we’re discussing.

Some of you have been running a business for a long time. Some have been working for / in the business, as well as owning it. Running it and working for it are not the same. If you have to get in the truck every day and go out to a job site, or open the computer and stick your face in a spreadsheet or programming tool in order for your business to get paid, you’re working for the business, even if you own it.

It doesn’t have to stay that way. If you’re not sure about the pain of stepping away, consider finding someone to take on the physical part of the job. In that mode, you’re hiring skilled people for a specific job (as opposed to “business owner”).

For now, let them do the work. Do nothing but manage that business. Once you see what it takes to manage the business day by day – while doing nothing else – then you can easily identify the skills needed to bring on a manager. Perhaps you look for a manager who is interested in owning the business, perhaps in partnership with the person you hired for the “skilled position”.

Test your team – and yourself

At some point, you should have systems and processes setup so that the skilled person is handling whatever “working for the business” work that generates revenue, and your manager is… managing. Get things to the point where you can take off for three weeks and disappear (or so they think – if you need that at first).

Because you still own the place you’ll want to have internal controls in place. These inform you and your manager that everything is where it should be, running as it should be, etc. Combined with a few metrics, you can watch the business from afar.

What metrics? Think about a few pieces of info from each department that would allow you to sleep comfortably knowing your team has everything under control. Even if you don’t see them as “departments”, they still exist. Finance and Sales exist even in the smallest of companies. You already know what metrics are important. Now consider what’s important at a distance.

Finance: What’s AR look like? What’s your free cash look like? Are any payments overdue? Are we current on tax filings?

Sales: What was revenue last week? Last month? How many bookings do we have for the next 30 / 60 days?

Even though you could get the numbers yourself, a regular report from your manager that provides these figures and advises what they’re doing about them will be useful for non-distracted time away from the business and quality sleep.

Still uncomfortable? Still can’t sleep? Maybe the wrong manager. Maybe insufficient systems or metrics. Get with the manager and get to the bottom of what’s uncomfortable and have them patch that hole.

One thing to avoid, unless there’s no choice – avoid getting back into the weeds. Guide your manager through the weeds. Have them guide their team through the weeds. Don’t get into them yourself.

You have options

For the short term, ownership can be an easier option. You can be involved with the business when they need your expertise, while stepping off for a while to determine what your future looks like. All the while, you can take a distribution from the business, even though it may be lower than what you were taking before.

You’ll still have all the equity until you decide to consider your next step, like selling the business to your manager and lead “do-er”, or selling it to someone else.

The unanticipated reward is that a business that no longer requires you to be there every day is worth more and is easier to sell. Until that day comes, it’ll be easier on your mind and your back.

Photo by Jonny Caspari on Unsplash

Categories
Banking Employees Entrepreneurs

Boomer business for sale

I noticed a decades-old retail business that’s closing soon. There’s no “For Sale” sign in the window. The newspaper article about the upcoming closure says nothing about the owner’s desire or attempts to sell it. It appears they’re simply closing. I suspect their staff are looking for a new job. Later that day, I was listening to a podcast discussing data showing that 60000 U.S. boomers retire every day and that boomers own 57% of the 28.7 U.S. businesses. The impact of closing rather than selling a “boomer business” will not go unnoticed by local economies.

This boomer business data comes from the U.S. Census, Social Security Administration, the SBA, the BLS, and the financial industry. Per a JP Morgan Chase analysis of U.S. Census data, 48% of the people U.S. employees work at a small business. 18% of them work at a small business with fewer than 20 employees.

Boomer business closures

If you combine the 60000 per day figure with the 57% figure, what you get is a picture of a massive group of businesses that will change hands over the next decade or so. The troubling thing is that the sale of the business isn’t the only option.

Many business owners choose to close up shop and walk away. Perhaps they don’t have children who wish to take over the business. Maybe they don’t feel their “boomer business” is worth anything to anyone else, even though it’s probably producing an income. They may not be interested in dealing with the hassle of finding a buyer who can pay the price, much less the effort required to train the new owner.

At first, I thought this apparent hesitance to sell and train was because a long-term business required very specific, and perhaps disappearing, skills. Some fit this profile, but the JP Morgan analysis shows that 51% of small businesses are less than 10 years old, so many likely aren’t limited by that problem.

Over 99 percent of America’s 28.7 million firms are small businesses. The vast majority (88 percent) of employer firms have fewer than 20 employees, and nearly 40 percent of all enterprises have under $100k in revenue.

JP Morgan Chase analysis of U.S. Census data

Why this matters

There’s somewhere around 155 and 160 million Americans employed. I know, the numbers are weirdly calculated, politicized (as always), and may count people with multiple part time jobs as more than one person.

There are probably other problems with the numbers, but for the sake of discussion, let’s assume they’re inflated by 20% – a wide margin of error. That means roughly 128 million individuals have at least one job. Interestingly, a little research after the first draft of this found a Statistica report showing that same 128 million figure for full time employment in the U.S.

If 99% of the employers of these people are small businesses, and 57% (percentage owned by boomers) of them have owners nearing retirement in some form, there are a lot of jobs at some sort of risk.

You can’t simply take 57% of 99% of 128 million, of course. What we can do is accept that it’s reasonable that a very large number of people work for businesses that will either close or change hands over perhaps the next 10 years.

With the average number of employees across all businesses being fewer than 20 (16 is one of the averages I saw from BLS.gov data), every time a business sells or changes hands, 15 jobs are at some level of risk (on average, assuming one owner is an employee).

That’s a significant impact on employment, even if these calculations are off by 50%.

SBA/SUSB data shows about 115,000 businesses in Montana – a number growing by ~3400 per year. About 51% remain open after five years.

If half of them close/sell over the next decade, that affects about 118,000 employees. While these numbers are rough, it’s reasonable that resulting life upheaval will ripple through local economies.

Collaboration required

Owners: Consider a creatively-structured sale. No matter how it pencils out, you gain little by closing the doors.

Employees: Tell the owner you’re willing to keep going. Look into how the business can be kept running. Someone who already owns a business is a good candidate.

Locally-owned banks: Is it OK for these businesses to disappear? No bank understands and can serve these folks like you can.

All three groups: Look for the win-win, rather than the fantasy outcome. Everyone can be rewarded by a successful transition – including the community’s economy.

Photo by Tim Mossholder on Unsplash