As you may know from my newsletter, I’m a trend person. I love reading about demographic trends and the impact on our culture. So reading about the coming tsunami, as the first of the baby boomers turn 68 and the last boomers reach the milestone half century, it’s like being in a candy store for me! What does this have to do with buying or selling your business? Well, I’ve been doing a lot of research on how those trends matter in the business world, and what I’ve found is that six (6) to eight (8) million businesses will change hands in the next 9 years as boomer owners exit their business. How they exit their business is where it gets really interesting. According to John Leonetti, author of: Exiting Your Business, Protecting Your Wealth :A Strategic Guide for Owners and their Advisor, seventy-five percent (75%) of business owners want to sell their business, but only 20% actually sell. The implications of this are grave for many boomer owners because the majority of their net worth is tied up in their business, and thus, the majority of their retirement funding, too.
Barriers to a sale
What to do? Well, you can begin with a business valuation, to get a sense of what your business is actually worth…not what you hope it’s worth. In a recent Wall Street Journal article ‘Stick Around After the Deal’, by Lisa Ward, one of the biggest barriers to selling your business is finding a buyer with the ability to get financing. Most buyers don’t have a wad of cash sitting around waiting on the purchase of your business.
So now what? Seller financing! Yep! That’s you. You are the bank, providing the loan and the buyer pays you back over time. Sure, there are risks with that, but according to a BizBuySell.com survey, ‘over 90% of business brokers consider seller financing to be either critical or important for getting a deal done’. Ward goes on to say, ‘In this economic climate, sellers willing to finance the sale can often get a faster sale and a better price than they would have gotten if they waited for a well-funded buyer’.
The advantages of seller financing? Rather than liquidating it, or disposing of it in a fire sale, you get to sell your business, for money! In addition, you may want the opportunity to stay engaged in the business, in some capacity. This option can provide that to you as a standard part of the contract. And, if the buyer defaults on your loan, you can activate your loan agreement default clause, returning the business to you without going through a lengthy and expensive court battle. The only problem with that is…you get the business back! If you wanted the business back, you probably wouldn’t have tried to sell it in the first place!
Don’t Get Derailed
What that means is … if you are going to seller finance, you are really making an investment in your buyer. You are counting on his or her ability to run the business profitably and sustainably so there is cash to pay you back! So what will it take to ensure that? You need to seek and select a qualified successor that has the competencies and skills to run, grow and deliver profit and cash flow. Will they be ‘perfect’? Doubtful. But they may have the ability to grow into ‘pretty good’ or even ‘great’! Without securing someone you have confidence in that can deliver, you have no return on that investment.
Ask us about our assessment tools to help you qualify your successor(s).
Starting early is key. Building an intentional process to qualify and develop your candidates will go a long way towards ensuring your identified successor is a viable successor. It can take 3 – 5 years or more to instill the level of experience, skills and confidence required to run your business profitably. It’s time to get started.