Is Your Business Ready for the Silver Tsunami?
The “Silver Tsunami” refers to the rapid demographic shift of the Baby Boomer and elder Gen X generations reaching retirement age in the next decade. According to the McKinsey Institute for Economic Mobility, by 2035, six million small and medium-sized businesses will be transferred with a combined estimated business value of up to $5 trillion. A large percentage of Baby Boomers and Gen X owners plan to exit in the next 10 years with most transitions occurring in the next five years. These business transitions can include transfers to the next generation, a sale to others in the current ownership group or a sale to an outside seller.
Careful planning and preparing before a business is put on the market is crucial to a successful transaction. Preparing a business for sale can garner a higher purchase price and make the business attractive to a larger pool of buyers. Pre-planning can also result in less stress for the sellers, a quicker path to closing, and fewer mistakes in the ultimate transaction.
Business owners should spend some time considering their sale options and the process before getting started. As part of this process, business owners should start gathering their team, well in advance of making any sale decisions. The quarterback for the sale team should be the attorney. The attorney can help with an analysis of sale options, a review of businesses issues that need to be cleaned up and advice on any estate planning considerations that need to be implemented before a sale. The accountant on the team can advise on tax strategies, clean up financials and provide reports that potential buyers will want to see. The business broker can help assess the business and its value, identify strengths and weaknesses, locate potential buyers, and facilitate an ultimate sale. The team should also include a financial planner that can provide a model for how purchase price proceeds can be invested to maximize the owner’s cash flow for the future.
Once the team is gathered, all members can provide the business owner with sale options and matters to consider. Having these discussions well in advance of a sale can make a seller better prepared for identifying tax planning opportunities, various sale structures and risk allocation. Waiting to consider these issues until the letter of intent or purchase agreement is being negotiated may not leave enough time to react. Starting a sale process with a potential buyer after engaging in appropriate pre-planning should result in a happier buyer, a happier seller and smooth sale process.