For years business owners have been hearing this message:
You had better sell your business now. There is a massive wave of baby boomer owners who will be selling soon. Move fast or you will be crushed!
The clear implication is “sell now” or be prepared to wipe out when you try to sell later.
We’ve even shared some of that thinking here on Exit Oasis.
While the demographic math makes it an interesting question . . .what if there’s a different answer?
Rod Burkert at Burkert Valuation Advisors challenges that tsunami assumption with some . . . well, some common sense. Rod’s post, reprinted below with permission, originally appeared here.
Exit Planning as a Service: 9 Reasons why I Have My Doubts
I hope last week’s conversation about removing drag and waste from your practice inspires you to make changes in the coming weeks … small, simple improvements that can make a dramatic difference in the efficiency and effectiveness of your processes and procedures.
On to this week. Exit Planning as a Service … EPaaS. Designed to meet the needs of that tsunami of retiring baby boomer business owners who will be looking to sell their businesses. Any day now. It’s all the rage. I can’t buy into all of it.
And if you’re new to the blog, welcome aboard. This is what we do!
Some 10,000 baby boomers are turning 65 every day … and that circumstance is expected to continue for the next 20 years.
It’s believed that many of these boomers will have closely held businesses to sell or transition out of … a mouth-watering opportunity for those of us offering EPaaS.
I was drinking the Kool-Aid, too. I wanted to shift my practice from gift/estate tax compliance to exit planning. So in March 2015, I attended the second ever training program offered by The Value Builder System and earned my Certified Value Builder (CVB) designation.
Fast forward to today. I made a recent appearance on NACVA’s Around the Valuation World. During my interview, I commented that I had some doubts about EPaaS. Later that day, someone emailed me with this question:
We are in the process of evaluating niching in exit planning. I’d be very interested in what your thoughts are on this as you made a comment that you had some reservations on this niche.
With all the thought I have since put into EPaaS, here’s how I responded:
- 65 is the new 45 … or at least the new 55. People want to be engaged with other people, and one of the best ways to make that happen is via work (and continuing to work).
- If the conventional wisdom about the tsunami of sellers is true, the prices of boomer businesses being sold will fall (supply and demand). And since many owners have an inflated estimate of what their businesses are worth anyway, more will choose to operate for “just one more year” rather than sell “now” at prices they think are too low.
- Many boomer businesses for sale will be in the service sector, which generally have no collateralizable assets for buyers to borrow against. Banks will have to be content with cash flow loans (will banks do that – I don’t know) and getting personal guarantees from buyers (will buyers do that – I don’t know). If not, sellers will have to carry the loan (will sellers do that – I don’t know).
- Other boomer businesses for sale will be capital intensive businesses. I have an exit planning client that is a steel service center. The four owners are all over 60 and work their asses off for a few percentage points of margin. They still make a pretty good living. But frankly, many people don’t want to work that hard when you can “make money on the internet in your sleep.”
- In other cases, particularly for web-based enterprises, it may be cheaper to start a de novo business rather than buy an existing one.
- Don’t even get me started on machine learning/artificial intelligence and what impact that will have on certain boomer businesses that will be available for sale. But those businesses that revolve around high volume, low skilled work will definitely be hurting … and not be sellable.
- Where is the tsunami of buyers for the boomer businesses? GenXers? They’re entering their prime income earning years, but bought the McMansions and convinced themselves they have an obligation to pay for their kids’ college education. So no money for a down payment and no security to make that leap to entrepreneur. Millennials? They’re still reeling from student debt, and many don’t have homes to guarantee a bank loan.
- The kinds of businesses that would-be buyers may want to start may not even exist right now. The products or intellectual property to be monetized don’t exist “yet,” but will be invented. These businesses will be built by kids willing to sleep on office floors and eat Ramen noodles. Or slightly older workers, already having full-time jobs but toiling on the side to build new gigs.
- Most financial people getting into the field are just that – number geeks. Whereas the reality of transitioning a business is often more psychological: how do I split the business among family members … which ones … what will I do after I sell … will the net proceeds be enough to last me through my lifetime (which may be another 25-35 years). So consultants in this field have to have as much (or more) coaching moxie as financial skills.
There will be EPaaS work for sure. I just think the above factors will reign in the tsunami. And just like fair value work never turned into the full employment act for business appraisers that many hoped for, I don’t think EPaaS will be the answer either.
These are just my opinions. Am I missing something? Email me and let me know your thoughts.
PS – I’m a fan of actionable ideas that move you forward, so I hope you find this content useful. If something resonates and you want to reach out directly, you can email me or schedule a call with me!
PPS – If you think we share common interests, connect with me on LinkedIn. If you like my blog, please recommend it to a colleague.
About Rod Burkert
Rod helps overwhelmed BVFLS professionals (like you) find more margin in their practices and their lives so that they can create the experiences that matter most to them. What’s margin? It’s the combination of time, money, and freedom that makes the magic happen!