For sale: Boomers’ businesses — but for how much?
“What if I started a business doing (fill in the blank)?”
In the beginning it was just you — and maybe a partner or two. The business ran on blood, sweat and tears, with some heart and soul thrown in for good measure — and a chunk of your personal financial resources, too.
So perhaps it’s no surprise that when the time comes to sell the business and retire, some baby boomers just aren’t prepared.
They may not have a full understanding of their company’s actual value. Or perhaps their inability to let go undermines the sale.
“The emotional investment is why it’s so difficult for most people to sell their businesses,” said Paul Chambliss, vice president of Front Range Business Inc., a Boulder-based brokerage firm that facilitates selling owner-operated businesses. Chambliss has helped hundreds of owners sell their businesses and has seen successful outcomes as well as monumental failures.
Take, for instance, the owner of a long-established plumbing company who came into FRB’s offices ready to sell. Chambliss and his team’s valuation produced a figure that was half of what the owner was expecting and said he needed to retire.
“We told him what the value drivers were for his business ... how he could increase profitability and make it more desirable for a buyer, (to make it) transferable, and how to keep the business intact, post-transfer,” Chambliss said. Another recommendation was to seek a business coach.
Twelve months later, after working with the business coach and executing all his recommendations, the owner came back, ready to sell a business that had doubled in value. Some of the steps taken were quite simple: Formalizing and documenting processes, creating employee, service, and maintenance manuals, staff training and, most importantly, working on the business, not for the business.
According to Chambliss, too many business owners are so caught up in day-to-day operations that they overlook the aerial view. Owners need to focus on marketing, training and where they want to take their businesses, then plan the route that will get the business to the final destination: a successful and profitable sale.
Sometimes owners sabotage themselves, with heartbreaking results. Chambliss recounted the story of the owner of a retail food business. The owner felt his business was worth significantly more than the valuation and refused to budge from the figure. FRB agreed to take on the engagement, but all the offers came in 30 percent to 40 percent below what the owner wanted to achieve. Eventually, he took the business off the market and continued to run it at a loss. Ultimately, the dominoes began to fall. The business went bankrupt. That domino struck the next one and then the next, and the business owner lost his other retail businesses and real-estate holdings.
“That’s an extreme example of failure,” Chambliss said. “That sort of emotional investment in a price or a business can take you places that aren’t logical, but it does happen. The first instance is more the exception than the rule. That (business) owner was eager for help, eager to take advice, and very motivated to implement the suggestions.”
Barbara Findlay Schenck, author of “Selling Your Business for Dummies,” recommends that when baby boomer business owners start thinking about an exit, they need to weigh some big questions:
• Do you want an immediate and total exit, or do you want to ease yourself away over a longer time frame?
• Is your business a decent sale prospect — or even a great one? If not, how much time and financial investment will it take to get it into sale-ready shape?
• Are you better off selling to business insiders, family members, employees or associates — or should you seek an outside buyer?
• What is the business worth?
Selling options range from liquidation (selling physical assets and closing up shop) to transferring a portion of ownership and responsibility as part of a plan to stay involved while selling the business in full over time, or selling the business outright to a new owner or owner group.
The more sale-ready the business is, the more it’s likely to look like a good deal to buyers and the more apt it is to not only attract a buyer but also to command a decent price. That means:
• The business needs to be financially healthy, with growing revenue and earnings.
• It needs to have strong business capabilities and processes.
• It needs to have unique and desirable products and services, a desirable location, a healthy market area and industry sector, clear ownership of modern facilities and equipment or long-term leases on them, strong staffing, a solid customer base, no legal or financial problems and a name and reputation buyers will want to pay for and acquire.
• It needs to be easily transferable to new owners.
As more baby boomers reach retirement age, the buyers’ market for their businesses has become very competitive. No demographic behind this one is as large, and subsequently there are fewer buyers.
It’s not all bad news. Chambliss is noticing that the market is recovering and has become stable. His firm sees a lot of profit-and-loss statements and says the trend is heading upward.
“It’s not a ‘hockey-stick’ rise,” he said. “It’s a gradual increase ... and we’re not expecting another downturn.”
With some careful planning and emotional detachment, Chambliss said, you can successfully sell your business and enjoy those golden years.