Will you be able to sell your company?

Will the Great Boomer Business Retirement Migration Actually Happen?

“We’re ready to sell. You know, we’ve kind of done all we can and we’re tired. It’s time for some new blood. So my partner and I want $5 million out of the business. So what are our chances?”

We listened to Trevor a proud and accomplished silver haired 59 year old , the owner of a 15 million dollar industrial company and wondered whether he and his 58 year old partner, Paul realized what getting that exit buyout would require on their part.

“There is only one way you are going to find a buyer willing to invest that much in your business. It’s called Valuation Planning and it may take 2-3 years to complete before you’re ready to sell.” I looked over
at my consulting partners as we watched Paul and Trevor’s faces fall. We had seen this reaction many times before.

There is nothing more painful than seeing successful business owners suddenly realize their retirement dreams might remain only a fantasy.

With every phase of life, the baby boomers have had a profound influence on the movement of money across most aspects of our economy. But in their next phase of development will their luck with creating wealth run
out?

The numbers suggesting this is indeed possible are staggering.

By 2011, the first of 70 million boomers are going to turn 65 years old. There are more than 26 million businesses in North America, and 50 percent are owned by boomers, according to the Small Business Administration. And 7 out of 10 of these owners will want to sell their business over the next 10 years, according to the Association for Mergers and Acquisitions Advisors.

That represents $10 trillion in retirement value and 75 percent of that $10 trillion may not be realized according to Richard Jackim in his book “The Ten Trillion Opportunity – Designing Successful Exit Strategies for Middle Market Business Owners”.

Industry Canada and the US Small Business Administration are very concerned that boomer business owners are not paying attention to these statistics and secondly do not have a good understanding of what it takes to sell a business. They have alerted city economic development groups across the country like the City of Nanaimo, BC and the city of Chicago, IL who are now trying to come up with ways to alert owners and help them to get ready.

They are planning for the future to ensure their communities stay economically buoyant according to Jason Boyce in an article entitled “Get Ready for the Big One: Succession Facilitation & the Coming Demographic Wave of Change” published in Making Waves Magazine.

Spirit West Management advises owners what must be done to 
set their house in order.

“It’s much more than succession planning,”
says Lorraine Rieger McGregor, CEO and partner in Spirit West
Management. “It involves reorganizing the company so that an investor
sees the value. That sounds easy but really what is involved is to stand
 in the shoes of a buyer and ask yourself, would I buy this company? Can
I easily see that it will continue to grow if the owner leaves so that I
will benefit as the investor? Succession planning is all about how you
will retire. Valuation planning is all about how the business will be a
continued success after the owners leave, which is all important to buyers.”

Rieger McGregor of Spirit West offers these five tips for business
owners who are starting to think about finding a buyer in the coming
years. First Tip? Start NOW.

1. Change Your Mind Set
Let go of your business now, emotionally. It’s not a reflection of who
you are; it is an asset that has investment value. The more you can view
your business from the eyes of an investor, the easier it will be to
make the transition to improving it so it will be attractive to
investors. This is not to say stop being passionate about your business,
it says let it stand on its own two feet.

2. Think Like a Buyer
If you were to buy this company tomorrow, what clues would tell you that
it would continue to be a successful company? What would you look for to
tell you that if you didn’t know anything about the company? Buyers want
to see past evidence of growth: The plans, the result and the effect on
profits. They want to know the industries your company sells to are hale
and hearty especially in this challenging economy. Are your customers
loyal, buying more regularly and getting your best solutions? Do you
have a sales pipeline leading to increased revenue? What tools do you
use for decision making? All of these things show a buyer you run a
tight ship.

3. Transfer Knowledge and Power
Who will run the company if you’re not there? Can you disappear for six
weeks right now and be sure the company will still be humming when you
return? If not, you’ve got work to do. You may need a management team or
a CEO. You may need to start training and trusting your own people a lot
more than you do now. When you walk into your operation is the
atmosphere tighter than a drum or congenial, tense or excited? How come?

4. Clean Up the Files
For the next three years you’ve got to show increasing profit margins in
a consistent, steady uphill line. That means you will have to clean out
the personal items in your expense account, know where you are missing
the mark and losing money and fix the problem and then set goals and
targets that your team is accountable for. Then look at your agreements
and contracts and get them reviewed by a lawyer. Do your supply
agreements restrict geographic territory or activities? Do you have the
best suppliers on your team? Are your shareholder and management
agreements tight or misunderstood? Get the right kind of help to sort
these problems out.

5. Focus on Growth
When was the last time you expanded your market place, launched a new
product or rethought your solution set to better meet customer needs? Is
it easy for customers to switch from your product to some other company’s?
If so, you better find out why. Get to know your target market. Are
you solving their problems in the right way? There is opportunity for a
profit in every hassle you uncover in their business.

Buyers want to see a healthy pipeline of orders and opportunities for
the future. “This is not meant to tell owners what they’ve built isn’t
good enough.” Says Rieger McGregor. “It’s to let owners know that there
will be a huge number of businesses all wanting to sell in the coming
years. Investors will have their choice of plum opportunities and will
reject the rest. They will pick the investments where their risks of
failure have been reduced. Owners need to know how to make that sense of
certainty obvious and reliable.”

It can take 2-3 years to sort out some of these issues. The time flies 
fast. Owners will be resistant to this effort: There’s a business to run
and there might not be “know how” or time to try and get these ‘value’
improvements done properly and without business disruption.

Valuation
 planning and execution is something owners will need help with. They may
 need a consultant that can help them plan and execute these changes,
their accountant to help them with tax strategies and their account
files, a lawyer to iron out the agreements and contracts and a board of
advisors to keep them accountable.

If owners want to see their retirement plans realized, the time is now. By 2011, there will be a lot more competitors.

And what of Paul and Trevor. They are one year into their reorganization and have found a new passion for their business.

And they aren’t tired anymore.

Business Owners Must Think Like Investors

Business owners today are facing a perfect storm of controllable uncontrollable variables. But according to the Canadian Federation of Independent Business, 52% don’t know they need to take themselves out of harms way.

Think of the situation before Hurricaine Katrina: some people believed it was important to leave the New Orleans area, and some did not. Those that did not suffered and the rest of us were left wondering what it was that didn’t compel them leave New Orleans when they had the chance. Today, three years after Katrina, when the forecasters yell Hurricaine, the residents along the Gulf Coast don’t think twice, they go.

What’s going to galvanize business owners into getting ready to avoid the perfect storm?

The boomer bulge, born 1946 through 1962 will spend the next ten to fifteen years extracting their wealth out of the economy to put to other uses. Or I should say, attempting to extract their share of their company’s value. The only problem is, owners have not prepared their businesses so that they are attractive for investors to acquire them.

A perfect storm of influences will increase the supply of companies for sale right when the need is greatest for investors to buy them. The storm is manageable, but only if owners take preventive action now to be ready. It can take 2-3 years to put the company on a growth plan. It’s more than just slapping a coat of paint on and installing granite counters.

Here are the big clouds on the horizon for this perfect storm:

1. The economy is in a decline;

2. There are more than 1.7 million businesses in Canada. 50% are owned by boomers. 500,000 will want to sell. In any given year in Canada, roughly 25,000 businesses change hands.

3. Owners don’t like thinking about the day they won’t own the business

4. Owners don’t know who to talk to. It’s understandable that they don’t talk about it. They don’t want competitors or employees to find out they’re thinking of transitioning their ownership.

Business owners need to take heed and learn how to see their organizations through the eyes of an investor: get to know the key indicators they look for and make sure they are instilled throughout the company. Remember, an investor buys the future certainty of profitability, rather than the past. For every foggy indicator, the risk increases and so the price they are willing to pay decreases.