Our nation is on the brink of the largest transition of individually-owned businesses in history. According to the California Association of Business Brokers, Baby Boomers currently own more than 70 percent of over 12 million private businesses which they will transition within the next 20 years. This is an unprecedented volume representing more than $10 trillion in assets.
If you think of this in terms of supply and demand — and you’re on the supply side — it can be daunting. This means you, the business owner, have some stiff competition if you want to sell your business any time over the next two decades. When you put up the for sale sign, your business had better stand out to the people buying businesses.
The Management Buyout
Those in the tech industry or sitting at the helm of large enterprises won’t have trouble finding buyers. It’s the small to mid-sized businesses in not-so-sexy industries, like manufacturing, that are going to struggle to sell. Still, a profitable business is an attractive investment. If you plan ahead your business will stand out in a flooded market and you’ll very likely find a buyer.
The most attractive investment for any private equity firm is a business whose owner is selling to his own management team. Almost every private equity firm would be willing to invest in such a team that's been running the business and wants a financial partner to help make it grow. On average, investors will put up the entire cost of the sale and give management 20-25%, keeping 70-75%. In this scenario, your business sells more quickly than others, you walk off into retirement with the value of your business now in your pocket, your management team receives equity and the firm has people in place they know can run the business. Everybody wins.
When you go to market with a business you can show has been run by your managers for years, profitably and without you, firms are going to want to buy.
Speak with an expert about transitioning your business.