Most retiring business owners cannot sell their business

Pew Research Center estimates there are 10,000 baby boomers retiring every day.  There are more than 4 million businesses in America owned by baby boomers, and according to Axial, 65-75% of these businesses will be “on the market” over the next 5 to 10 years.  Can you say glut?   I’ve heard many comments like “trillions of dollars will change hands in the next 10-20 years.”  But I’m not buying that hype for I believe most of these baby boomer-owned business will not be sold, they will be closed or just given away.

Why?

Not a week goes by that I don’t get a call from a business owner who is ready to sell his/her business and start retirement.  Within 60 seconds, I can identify two of the three reasons the business is not likely to sell.

Business valuation is a mystery to most business owners, but what they want for their business is not.  Most retiring business owners have derived the “value” of their business relative to how much they want for retirement.  So, here’s what happens ….. the business owner calls a professional and honest business broker/M&A advisor who explains how business values are determined.  The business owner then applies those standards to his/her business and realizes their business is worth less than what they need for retirement.  At that point, the business owner will drop the idea of selling and instead recommitment to “toughing it out for a couple more years”, or the business owner will shop around for a business broker who will tell them what they want to hear.

Then guess what happens?  Nothing.  The contingency-hungry business broker does a few things the first couple of months, but when the cricket chirping goes silent, the broker’s attention gets diverted to the next shiny nickel leaving the business owner languishing in limbo.  After waiting for “the market to turn around” (the most common broker excuse), the business owner pulls the listing and the broker goes away.

What can I say?  Over-priced businesses just don’t sell.

The second reason most retiring baby boomer business owners will not be able to sell their business is because it has a flaw(s) that renders is essentially unsellable.  The most common flaws are poor financial records, customer concentration, or swings in revenue which render the future too unpredictable.  None of these flaws should be fatal, they can be fixed with sufficient time and focus, but if the retiring business owner is ready now and/or has to sell now, he/she doesn’t have the advantage of time.  The business is likely to not sell.

Sorry to report, but way too many businesses 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 your head and think “it didn’t have to go down like that.”

Poorly trained or incompetent business brokers are usually the culprit.  Let’s face it, it’s easy to talk a good game about having access to buyers, deals you’ve done in the past, etc.   But most business brokers simply post their client’s business for sale on publicly-accessible websites, then wait for someone to call. Sometimes that strategy works, especially if it’s a properly-priced good business.  But professional proactive marketing will always bring a faster sale for more money.  Always.

There is no mystery to selling a business.  Before you retain an intermediary to market your business for sale, it’s fair to ask them to specifically lay out what they will do to market your business.  If they can’t get past the basics of posting on websites, look for another intermediary.

It’s sad that so many baby boomer business owners will not be able to sell their business to fund the retirement they want (or need). However, it’s good news that all of the three problems described here are solvable.  It takes time, energy, and it might even take some money.  But being proactive now to sell your business in three to four years will pay off in more ways than you might ever imagine.