The baby boomers are retiring, and there are a lot of them. Some of the baby boomers own very successful businesses. If you are considering becoming a small business owner, then you should consider buying an existing business from a retiring owner.
The case of the retiring small business owner
This year alone, I worked with three different small business owners who had made the financial decision to retire. Two of the business owners desired to transfer their ownership to the next generation. (See my related article, Family business and the second generation curse.) The third business owner does not have any family member either working in the business or interested enough in the business to take over operations.
This particular business owner was born in 1944. A little old for a baby boomer, but close enough for this discussion. He started a very successful, highly profitable business many years ago and is in the process of retiring. He has been searching to find the right person to buy the business for at least five years. His biggest issue? Finding someone with the right skills for the business who can also afford to purchase a multi-million-dollar business.
My clients are not alone. With the baby boomers reaching their 60s and 70s, many are searching for their ideal person to transfer ownership of their small business to.
Small business sales projections
According to a recent Fast Company article, Forget Startups – Just Buy a Small Business From A Retiring Entrepreneur, over the next 20 years, 70% of 12 million privately held businesses will likely change hands. These businesses represent over $10 trillion worth of assets. That’s 8.4 million opportunities for you to find the right business to buy at an average cost of $850,000. And these opportunities are not just for budding entrepreneurs. If you already own a small business, this could be your opportunity to expand into new markets or new segments of your industry.
Be prepared when opportunity presents itself
Buying opportunities for small businesses abound, and are likely to remain opportunistic for many years to come. As someone interested in becoming a small business owner, there are a few things you should be working on to be ready when opportunity comes knocking:
- Be financially ready. Unless you have a substantial nest egg that you can use to pay cash for a new business, you will have to have financing of some sort to be able to purchase a new business. It is true that some small business owners may be willing to finance the sale. (See related article.) But will they be willing to finance a sale of their business to you? If you are burdened with credit card or student loan debt, if you do not have a significant net worth, or if your credit score is abysmal, then your first step is to get your financial house in order. Any prudent lender, be it the bank, friends and relatives, or the seller, will want to see your personal financial information before making their decision to lend you money.
- Be emotionally ready. Being a small business owner is stressful. Be realistic about this commitment. And be realistic about how this commitment will affect those around you, particularly your family. In most situations, you will probably be heavily involved in the daily operations of the business. That means when everyone else goes home, you may have to stay late to get the job done. Don’t think that everything is lovely when you work for yourself. No one can explain the stress of having to borrow money to pay your employees because your receivables are not being collected on time.
- Be prudently ready. Seek help from professionals before making your commitment. It is much easier to consult with your accountant and attorney before committing to purchasing a small business than after. Many deals have collapsed because expectations set in the initial conversation were not met once the attorney or accountant was consulted. It is much better to present yourself as a prudent business person than to be too eager to purchase.
Thomas Edison once said, “Opportunity is missed by most people because it is dressed in overalls and looks like work.” How true. Opportunities to buy small businesses are out there, and more opportunities are coming. Work now to be prepared to purchase, and be ready to work harder than you have ever worked before to build on the success of your predecessor. And look forward to the day when you will be looking for the right person to buy your business.