The demographics of the Boomer transition are not very encouraging for business sellers. We are rapidly approaching the worst imbalance between small business sellers and buyers in history, and it will continue for the next 20 years.
The most generous estimate of the population born in the twenty years following the Boomers is that they are 9 million fewer (69 million vs. 78 million.) More importantly, the bulk of that group was born in the late 1970’s, when birthrates began to rise again following the “Baby Bust” of the late 60s and early 70s.
From 1953 through 1957, over 21 million children were born in the US. From 1973 through 1977, there were only 16 million new births, 23% fewer. What happens to pricing and competition when there are four sellers for every three buyers?
If the problem was limited to the numbers alone it would still be dramatic. In addition, there are other factors that make the numerical shortfall even more pronounced. The profile of the buyers, and the values and the choices of Generation X, will exponentially increase the gap between Boomer sellers and the people to whom they expect to sell their businesses.
The value system of this buyer generation doesn’t fit the values that are predominant in Boomer entrepreneurship. The concept of devoting 50 or more hours a week to a business, and doing it for 20 years or more, is antithetical to most Gen Xers preferred lifestyles.
From 2018 to 2023 the boomers will be reaching age 65 at a rate of 10,000 a day. About 9% of those aging boomers are business owners. Even if the next generation had the same competitive instincts and work ethic as the Baby Boomers, the number of available buyers would be short by over 200 daily.
Based on the numbers alone, small business buyers will have ample choice in the marketplace. Having had little opportunity to build up savings, they won’t have much cash to put down for a successful Boomer business. This will create a large number of sellers who will be forced to finance an acquisition themselves, rather than walk away from the business with nothing.
Of course, the best Baby Boomer businesses will still find qualified buyers. In order to successfully sell in a competitive market, they will need profitability, systems, and a track record that is better than that of their competitors. If you would like to assess the status of your business and its chances for successful transition, please give us a call.
© 2014, MPN Inc.
Don Pippin Jr