Your Millennial Clients Could See Opportunities as Your Boomer Clients Sell Businesses

Baby boomers’ heirs are awash in the “Silver Tsunami.” Cerulli projects that 75 million baby boomers will transfer $124 trillion to heirs ($105 trillion) and charities ($18 trillion) from 2024-2039. Many of these boomers are business owners who are selling their businesses. This article provides guidance for these retiring business owners, their heirs and their advisors.

This article also discusses opportunities for investors to capitalize on this once-in-a-lifetime mass exodus of baby boomer business owners. Millennials are particularly interested in buying these businesses and rejuvenating them. It’s an article for both buyers and sellers because – after all,they need each other. And it’s an article for both young and old.

Readers of this publication are accustomed to owning publicly traded companies, but at $10 trillion, this is the biggest investing opportunity of your lifetime; don’t miss it. View these opportunities as unlisted stocks that won’t be on sale for long.

Here are reasons that this massive sale could be of interest to you:

You are a baby boomer business owner yourself, so you want the best price for your business;
You have baby boomer business owner clients who need your help. Helping can mean keeping those accounts;
You want to buy baby boomer businesses. Private equity investors should be particularly interested; or
You see acquisition as safer and smarter than starting a business from scratch. Entrepreneurship Through Acquisition (ETA) has become popular among young investors.

Here’s an overview of the situation

Three-fourths of baby boomer-owned businesses are profitable, according to statistics from Guidant Financial;
There are 12 million baby boomer-owned businesses in the United States, which is about half of all businesses;
Baby boomer-owned businesses are worth $10 trillion, and employ over 25 million people; and
Although a large number of these businesses are thriving, nearly 60 percent have no succession or transition plans in place. One in ten businesses are open to just closing down.

For more details, visit this website. The following are interactive graphics on the site.

A lot is at stake. Selling your life’s work is a first-time endeavor for most; it can be gut wrenching and overwhelming. Owners run businesses that they understand well. But they don’t understand the nuances of selling that business. This article outlines steps that baby boomer owners should follow to get what they deserve. You’ll only do this once, so get it right.

Buyers can research opportunities by checking out “for sale” listings provided in the following; especially lists of baby-boomer-owned businesses. Millennials in particular are finding these opportunities very attractive as they explore entrepreneurship through acquisition (ETA) where they “land running” rather than start a business from scratch.

Exit choices

Retiring baby boomer business owners have the following exit paths from which to choose. Percentages are provided by the Goldhill Group.

Transferring to family members (37% of owners prefer this)
Selling to partners or key employees (25%)
Selling to third parties (25%)
Closing or winding down the business (10%)

Implementing your choice can be complicated. The good news is that you can get help. See the section below on “Getting Help.”

If you choose Door #3 – selling to third parties – you’ll need to find buyers and structure the deal, as discussed in the next section. About $4 trillion is following this path. If you choose Door #4 – closing down – consider listing your business just for grins before you close the doors; you might be surprised.

The deal

If you own a big company , with more than $50 million in annual revenue, you could talk to private equity investors and venture capital, but these potential buyers are not interested in smaller companies. If your company is not big, or you’re leery of institutional buyers, you’ll need to shop for retail buyers.

Here are recommendations from this Forbes article for finding buyers:

Use Your Personal and Professional Contacts
Hire a Trusted Business Broker (see costs below)
Advertise on Online Business Sale Platforms
Use Google Search Wisely
Network at Industry Events and Conferences

The same Forbes article also lists the following steps:

Think about what makes your business special. Write these things down.
Identify what kinds of buyers you should approach, based on your goals and their goals.
Then, think about which of the above strategies above would work best based on your business.
Decide where to find the right buyers and approach them

Structuring the sale

According to this article, there are three ways to structure the deal:

Asset sales;
Stock sale; and
Merger.

Each has its own tax consequences that you should have your accountant review. Also, the way you receive the sales proceeds has consequences, especially if you agree to things like an earn-out or contingent sale.

Setting a price

According to this article, your sales price will typically be tied to earnings before interest taxes and depreciation (EBITDA). The sale price of a business is often estimated by multiplying its EBITDA by a multiple that reflects industry standards or recent market movements. For instance, consumer products companies may use a multiple of five to eight times EBITDA, while healthcare businesses might be valued at six to ten times EBITDA.

This variance underscores the importance of understanding how different sectors influence valuation norms. Exit advisors can help you establish a fair price, as discussed in the next section.

Buyers also establish a fair price using EBITDA as a base, and they can shop the websites provided in the following section.

Getting help

Here are directories of professional exit service providers who can help you execute your exit strategy.

Certified Exit Planning Advisor (CEPA) Directory. The Exit Planning Institute maintains an online directory of Certified Exit Planning Advisors (CEPAs). You can search this directory to find qualified exit planning advisors in your area.
Business Enterprise Institute (BEI) Directory. The BEI offers a directory of Certified Exit Planners (CExPs), which is a different designation from CEPA. You can find these professionals through their "Find an Exit Planning Advisor" online resource.
Professional Organizations. Several professional organizations maintain directories of certified exit planners:

- Exit Planning Exchange (XPX): Offers a member directory of diverse experts in exit planning.
- Wealthtender: Provides a map-based search tool to find CEPAs near you.
- Exit Factor: Offers a directory to discover certified exit planning consultants in various locations.

Like selling your home using a broker, there are directories of business brokers, like this one from BizBuySell.

To find the most suitable service providers for your needs, use these resources and then verify the credentials and experience of potential advisors before engaging their services.

Costs

Of course – much like selling your house by owner – you can sell your business on your own by listing on web-based lists such as the Golden Future Initiative.

But if you decide to get help, the Business Enterprise Institute provides the following guidance on fees you can expect to pay. Both sellers and buyers can use these services.

Business broker retainers – These can range from a one-time charge of a few thousand dollars for a small pizza shop to $10,000 or more per month for businesses with more than $10 million in value.
Business broker success fees – Many planners use the Double Lehman scale (a common, industry-accepted formula) to calculate their success fees based on the gross sale proceeds
Attorney fees – Rates will vary based on the geographic location and the attorney’s level of expertise but will typically range from $300 to more than $1,000 per hour.
CPA fees – Your CPA should be involved in the tax planning aspect of your sale and spend at least 10 to 20 hours on your transaction. CPA rates can vary from $200 to $600 per hour

The other side of the coin: Buyers of baby boomer-owned businesses

Up to this point, this article has primarily been directed at sellers. Now I turn to buyers, most of whom are millennials. Younger people are finding it appealing to employ entrepreneurship through acquisition – ETA. ETA is a model where aspiring entrepreneurs purchase an existing business rather than starting a new one.

This process allows the buyer of the business to begin their entrepreneurship with a business that already has a revenue stream and operational structure. In short, the existing customers and cash flow of these businesses make them less risky investments than new ventures. Buyers can use the links in this article and “By Owner” directories to shop for acquisition candidates.

Conclusion

If you’re a baby boomer business owner, I hope this article helps you; you’ll only do this once, so get your best price. If you’re interested in capitalizing on this great once-in-a -lifetime opportunity, check out the resources provided in this article for possible acquisitions.

I wish you lucrative (and great) success.

Ron Surz is president of Target Date Solutions, developer of the patented Safe Landing Glide Path and Soteria personalized target date accounts. He is also co-host of the Baby Boomer Investing Show. Surz’s passion is helping his fellow baby boomers at this critical time in their lives when they are relying on their lifetime savings to support a retirement with dignity, so he wrote a book, “Baby Boomer Investing in the Perilous 2020s,” and he provides a financial educational curriculum.

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