For those of you running your side hustles and banking some extra cash I hope you ear mark some of those funds to take advantage of the coming transfer of wealth. Baby boomer owned businesses that don’t have succession plans in place are going to offer great opportunities for those of you who have the wisdom to set some money aside. Between now and 2030 there will be many coming opportunities for those that want to buy a business.
Depending on who you believe baby boomers were born between 1945 ish and 1965 ish which would make them somewhere between 50 and 70 years of age. The baby boom generation produced many great little companies and of those businesses not all of them have succession plans in place. What does that mean? That means that a time is coming when they will be forced to sell their business or liquidate their assets because there won’t be anyone around to keep the company going. Don’t believe me? Read on.
Creating a succession plan is hard.
Setting up a succession plan is difficult for business owners for many reasons and because of that they often don’t get put in place. Many founders find it difficult to entertain the idea that they won’t be the ones to continue running the company. They spent a lot of time and effort to build their organization now they have to come to grips that they can’t run it forever. How do they walk away from their baby and hand the keys over to someone they know doesn’t have the same love for the organization? How do they put their pride aside and admit they can’t continue calling the shots? In many cases business owners can’t bring themselves to do any of the above and in turn don’t set the business up to change hands.
Generations after the founder don’t want to be in the business their parents started.
It is a widely acknowledged fact that generation 2 business owners do not see the business the same way the founder did. Succeeding generations may differ in values or simply not have the fire behind them to want what the founders of the business wanted. When it comes time for the next generation to take over there are many that choose simply to go a different direction. This makes a lot of sense to me. How many children follow the same professions as their parents? Sure it happens but it is not as common as children going different directions. In some cases this dynamic may not be initially clear to the gen 2 owners. It’s not until they are knee deep in running the business that they find out that they are not interested in spending their lives doing what their parents did.
Selling a successful business fore what its worth can be tough as the number of potential buyers is not great.
Let’s say there is a retail store that sells furniture / décor and the owners decide they want to call it quits. They are doing a million a year in gross sales and want to sell for 5 times earnings. If they are making 10% this would be $500K. How many people want to buy a furniture/décor store for ½ a million dollars? Other than their primary competitor there are likely not many buyers. As it often goes the ones with the money don’t want the business and the ones that want the business often don’t have the money. In such a case the owners of the store would likely liquidate their inventory and sail off into the sunset. All of the goodwill that they had in the brand they built is simply thrown away. Seems crazy to me but it happens all the time.
Are you going to be ready?
I don’t expect this dynamic to be something that will have a hard start or stop date but it will be one that will play out under our noses if we aren’t paying attention. Now that you know its coming you can start to prepare. Set a little cash aside each month or from each job and keep that cash available for the time when you come across a great opportunity.
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