A Storm Warning: Preparing Your Business for Sale in Advance of the Seller Tsunami

Unlike an unexpected earthquake which produces a devastating Tsunami without warning, the Seller Tsunami is one that we have advanced warning for. What does it mean for business owners planning their exit to sell their business? Quite simply the Seller Tsunami refers to the large number of Baby Boomer-owned businesses which will be sold in the coming years.

The Baby Boomer generation refers to the segment of the U.S. population born between 1946 and 1964.  As of 2020 the ages of those in this segment range from 56 to 74 years of age – a significant number of individuals either already in the traditional retirement range or who will soon be entering retirement. The slow trickle of retirement age business owners has helped to fuel the most robust business sales environment in history in the last 5 years. Economic growth, low interest rates, changes in corporate human resource demands (downsizing), and very friendly SBA-backed bank lending resulted in what Business Brokers would refer to as a Seller’s Market which has resulted in historic high multiples paid for businesses.

The U.S. had enjoyed the longest period of business expansion during the (last) business cycle which abruptly ended in March of 2020 due to the impact of the Covid-19 pandemic. While our industry had warned of a coming economic downturn (recession) towards the end of 2020 and into 2021, no one could have predicted the unexpected and immediate recession caused by the pandemic. Business owners who planned to begin the business sales process in 2020 and 2021 have had their plans put on hold while they watch the perceived value of their businesses decline virtually overnight. Those wondering if this is a good time to sell should click here. The takeaway from the events of the past months is clear: prepare for the unexpected. But what if you know beyond a doubt that an event which will diminish the value of your business is looming? The savvy business owner knows the answer: Prepare!

There are an estimated 9 million Baby Boomer-owned businesses in the U.S. Should half of these transition ownership to family or employees it will mean that as many as 4.5 million businesses owners will be exiting their business in the next 10 years. Using very simple math this means that as many as 450,000 businesses may come to market in each of the next 10 years. How does this compare to historic business sales? According to BizBuySell’s Annual 2019 Insight Report (click here to read report located on RMBA website) 7,842 businesses were sold in 2016 and 9,742 in 2019. This represents a surge in business sale transaction growth of more than 25%. However, this pales in comparison to the massive number of business sales projected in the next 10 years. It is important to understand that 450,000 business transitions include those that will simply fade away but even if we project that only 10% of that figure it means that an astounding 45,000 businesses will be sold each and every year for the next 10 years!

What does this mean to the business owner thinking of selling their business? Simple economics tells us that when supply exceeds demand that prices drop. This will occur as sure as the sun rises every morning. Smart business owner thinking of selling their business will take action NOW to preserve and enhance the value of their business.

The Seller Tsunami is coming, and the storm flags are waving in a headwind of business value uncertainty. You should begin making preparations with a sense of purpose and urgency. No panic, just action. Great businesses always sell for the highest prices but a ‘great business’ is more than an opinion by an owner, it has concrete attributes which both buyer and lender will accept, agree on, and place a premium value on. The vast majority of business owners have little idea what concrete attributes contribute to the value equation. Thankfully the most successful business brokers understand the value equation and can guide the business owner to a successful exit at the highest price.

If this article does not cause a pause for the thought about “How to Value a Business?” perhaps the following statistic will less than 20% of all businesses offered for sale actually sell.

Will you unlock the highest value for your business in the coming Seller Tsunami? More importantly, will your business be among the 20% that do sell? Consider taking steps now to ensure you exactly know how to value a business.

Rocky Mountain Business Advisors is a business brokerage focused 100% on selling our clients’ business. As Business Brokers, we fathom it as our responsibility to apply a proven process to educate, prepare, and guide our clients through the sales process so that they can focus on managing their business while we focus on a successful sale. We bring a strong sense of urgency and tenacity to every engagement to realize the highest sales price in the shortest period of time. We bring buyers and sellers together. Contact us at 303- 474-5582https://rockymountainba.com/, or schedule a free 15-minute consultation to learn more about the services that makes us one of the best business brokers in Denver.