Back in 2011, the very first Baby Boomers (those born between 1946 and 1964) turned 65, the traditional age of retirement back when the fathers (and they were mostly fathers) of the Boomers expected to retire.
Today, most people are being advised to put off collecting Social Security until 67. Life expectancies are longer, and many Boomers continue to work past retirement age, either because they’d rather do so or because their retirement funds are insufficient.
But what about Boomers who own their own businesses? With the economy steadily improving in recent years, The New York Times reports that business-owning Boomers are seeing a window of opportunity to cash out.
The median sale price of small businesses is up 12 percent over last year, which means the time is ripe for those whose equity in their business represents their retirement funds, or for those who’ve just decided to move on.
Related Article: Hard to Say Goodbye: Are You Ready to Sell Your Business
This increase in business sales also means a shift in demographics. The new class of small business owners includes a higher portion of minority groups and women than the predominantly white male owners of the Boomer generation.
According to one study, younger buyers as a whole bring greater diversity to the table. Among buyers 65 and older, 87 percent were Caucasian. But more than half of buyers between the ages of 18 and 29 were Hispanic, African-American or another racial minority. And while only nine percent of buyers over 65 were women, 19 percent were women in the 54 to 64 year-old bracket, with slightly more women in younger groupings—20 percent of those aged 30 to 49 and 23 percent of those aged 18 to 29.
Unlike their post-WWII counterparts, younger demographics are more used to job hopping and have less loyalty to an employer. Which is, in part, why they are more likely to view owning their own business as a means to better job security as well as more rewarding work. Ironically, when Boomers sell their businesses, they tend to stay on as consultants or part-time employees, so young business owners may wind up employing their grandfathers.
Another incentive to purchase a small business is last summer’s increase of the Small Business Administration’s lending cap to the highest ever of $23.5 billion. The cap was lifted in response to loan applications that were so heavy, the SBA had to suspend lending. While not all SBA loans are to purchase a business, The New York Times reports the overall high demand as a sign of confidence in the economy, making it a key time to consider purchasing a business.
Related Article: The State of Small Business in 2015
How Big Is the Boomer Bubble?
Planning Your Business Sale
If you’re contemplating selling your business, you need to make a decision soon. Those who put their business on the market at the beginning of the curve are more likely to get higher prices than those who sell after the market gets oversaturated.
You need a plan to minimize the tax implication of the sale and to position your business as the best possible investment at the best price. As Honey Rand, owner of a PR firm in Tampa, Fla., who is contemplating a future sale of her business explains to CNBC, “I like to think ahead, to understand the process and the things that could affect a sale or sale price. When the time comes, or if it comes, I want to be ready. I don’t want to feel like it’s a fire sale.”
According to Alan Brind, it takes two years of focused activity to get your business ready to sell. Your plan should consider the following:
- What are your personal and financial goals for selling the business? If it is for retirement, how much do you need to support your lifestyle? If you’re looking to acquire or start another business, what are your funding requirements?
- What can you do to improve “Salability?” Anything you can implement to maximize efficiency and profitability increases business valuation. We’re not talking short-term actions such as reducing staffing, but rather measures anyone looking at your business plan will see as paying off in the long-term.
- Make sure your financials are in order. Your buyer is going to want to see the state of your accounts receivable, accounts payable, inventories and payroll. Clearing up any debt or cash flow problems improves marketability.
- How do you propose to transition? While there are always those who want to start fresh with their own team, most buyers look for some help in taking over. This could involve the retention of senior managers, owner commitment to consult for certain a specified time, or the hire of the owner as a part-time or even full-time manager.
- Hire a broker. Sure, you have to pay a broker. But do you have have the resources (and time) to effectively market your company and get the best deal? Here’s how business brokerage Tennessee Valley Group put it: “Way too many business are put on the market for sale, then not marketed properly. It’s like watching a QB pass from the one yard line in the closing seconds of the Super Bowl…you watch it happen, shake you head and think, ‘It didn’t have to go down like that’.”