Successful transitions

The U.S. Economy IS Small Business, and It’s About to Change Ownership

Small businesses in the United States represent 99.7% of U.S. Employer firms, 63% of all NEW private sector jobs, and 54% of all U.S. sales, according to the Small Business Administration.

If you break down the demographics of the owners of those businesses, you will find that 64% of them are male, 50.9% are age 50-88, and 25.6% of them are minorities. The largest sectors are Professional, Scientific, and Tech Services (14%), Construction (11%), Real Estate (9%), and Healthcare and Social Assistance (9%).

…the majority of small businesses in the U.S. are owned by Baby Boomers…these business owners will sell or bequeath $10 trillion worth of assets over the next 10 years.

These demographics show that the majority of small businesses in the U.S. are owned by Baby Boomers and The Silent Generation.  According to CABB (CA Association of Business Brokers), these business owners will sell or bequeath $10 trillion worth of assets over the next 10 years–which will flood the market with businesses for sale, and drive competition for buyers.

What is your plan to manage your exit?  Are you prepping your business for this hand off, or are you just going about your day as usual?  Here are three things we see businesses we work with doing to prepare for this massive shift.

  1. Talking with family and lead management about their vision for the company after the current owner leaves.  We have seen many business owners talking to their spouse and kids about whether they would like to take over the business or whether they should look at selling it.  When looking at selling, most of our owners look to their management team or an outside strategic partner as a potential buyer of the business. This process often takes 3-5 years to fully map out with accountants, bankers, and wealth advisors, but the owners who take a proactive approach are much better off having a planned exit rather than a forced exit due to declining business or other outside factors.
  2. Meet with private equity firms and business brokers to discuss what future options are available for the sale of the company.  When it comes to selling a business, there are many options. What matters to you: money, taking care of your employees, leaving a legacy, and/or ensuring key customers are taken care of?  You’ll come up with different answers depending on the sales path you choose.  I have met with dozens of private equity firms, business brokers, and exit planning specialists, and they all say the same thing, “Talk to as many people as you can as early on in the process as you can. You will have more options.”  This ability to have options is what we’ve seen business owners desire, but many times it is too late.  Failing to plan ahead can leave you with a business that isn’t sellable–or worse, a business that is losing money and will require you to reinvest just to make sure it closes without you losing more.  Meet with experts who do this for a living and find out what options lie out there.
  3. Invest in sustainable sales and marketing systems. This is often overlooked by many business owners, however, it can be the key to unlocking massive potential when it is time for you to exit. Investing in sales and marketing systems leads to a triple bottom line and paves the way toward profitability for your successor.  Triple bottom line defined: 1. Sales and marketing adds to your overall profits and EBITDA each year you invest in it and see the returns. 2. This ongoing increase in yearly EBITDA increases the amount that an acquirer will be paying and is often how many buyers judge the health of your company.  3. Increased multiple: buyers want to see that you have a sophisticated sales and marketing machine that isn’t tied to the owner. If it is, you are going to be asked to stay around for a while to transition the business, and the company isn’t as valuable. A sophisticated sales and marketing system ensures that the business can stand on its own, which adds value to the acquirer. If you aren’t selling to a strategic buyer, having a solid sales and marketing system will ensure that your future successor is handed a working system that they can chose to adapt or modify instead of trying to learn sales while also trying to learn how to run a company.  Set your future successors and yourself up for success and invest in the sales and marketing systems for your company.

It’s true, no one lives forever–and for the majority of business owners in the U.S., there is a shift coming that some will profit from and others will miss.  At goBRANDgo!, we feel it’s important for you to invest in taking care of your family, your employees, and the loyal customers who helped you get where you are today.  We’d love to chat to see how we could help you prepare, either directly or by introducing you to a vast network of professionals. We look forward to meeting you!

Like visuals? Check out this infographic on the state of small business in the United States.

-Brandon Dempsey, Partner, goBRANDgo!

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