OK boomer — if you were born between 1946 and 1964 and you’re ready to sell your business, there’s one thing you can count on — you will get offered plenty of advice.
That’s the easy part.
The hard part for owners is to determine what is good advice, and when the time is right, to take it.
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It is a challenge because business transition advice is a booming business in Canada and the United States now, as Woodstock-generation entrepreneurs and owners reach the age when they want to sell.
Even before the pandemic became official in March, 2020, half of SME owners in Canada said they planned to sell their businesses within the next five years, according to the Economic Research team of Business Development Canada, a Crown corporation that advises and assists small businesses.
“With more than one million SMEs in Canada, this means 500,000 companies could change hands by 2025,” BDC’s researchers said.
COVID-19 has been spurring more boomer-era owners to consider selling, says Eric Gilboord, chief executive officer of Warren Business Development Centre Inc., which advises and helps arrange connections for business buyers and sellers.
“We’re seeing a lot more people who own businesses who, in the last year, just decided that it’s time to sell. They’ve had time to think about what they want to do with the rest of the time they have left in their lives,” says Gilboord, who offers his own online course to help owners make the transition.
While the wave of business transitions has been predicted for years as the boomers get older, it may be gradual rather than sudden, says Mike Finger, founder of Exit Oasis, a business transition advisory firm based in western Wisconsin.
“I keep waiting for the trend to happen, for someone to show numbers [of an increase in business transfers] and I just haven’t seen it yet,” Finger says.
In the United States, the BizBuySell Insight Report, which tracks U.S. business sales, found that business transfers in the U.S. actually declined by 12 per cent in the first quarter of this year compared with the same period in 2020, although the median sale price is higher.
“Sometimes I think the wave [of sales] is an idea being promoted by business transition specialists, but really it may simply be that people sell their businesses at different ages — some when they’re in their 40s, some in their 60s and some wait until they die at their desks,” Finger says.
The average age of these owners is 65, and nearly half say they plan to transition in the next five years.Eric Gilboord, Warren Business Development Centre
Gilboord says that the stats speak for themselves but the increase in business transfers will be inevitable. “Boomers own about 65 per cent of private businesses in Canada and the United States. The average age of these owners is 65, and nearly half say they plan to transition [sell or transfer their businesses] in the next five years.”
SME owners may think they simply will pass their businesses to their children or grandchildren, but most won’t. “Fewer than 30 per cent of these private businesses survive into the second generation, and only 3 per cent make it to the third generation. That’s a whopping failure rate,” Gilboord says.
This speaks to the need for SMEs to get professional advice on succession and transfer, and the opportunity for professionals in this field to provide and grow their services.
“It’s not like selling your house, where you can clean it up, do a renovation and put it on the market and get a good price,” says David Prowse, a certified business valuator and principal of Velorum Business Advisory, based in Burlington, Ont., which assesses businesses’ value independently, leaving the buying and selling to owners and brokers.
In Canada, banks, financial institutions and advisors, as well as the federal BDC, offer assistance to owners who want to sell their SMEs and also to prospective buyers. But there are only about 3,100 members of Canada’s CBV Institute, the not-for-profit organization that sets practice standards and runs courses to qualify people as business valuation specialists.
There appears to be a great need for this specialized advice among aging boomer business owners now, which might explain why the predicted wave of transition is still yet to happen, Prowse says.
“The wave will come, but there’s a lot of apprehension about moving on. People haven’t done a lot of post-exit planning; many owners have a mental block and some even sabotage the deals as they’re taking place because they just don’t know what their world will look like after the sale,” he says.
There’s great opportunity for business transition advisors simply to educate SME owners about their options, Gilboord says.
“A lot of owners are in the dark about their future. Two thirds of owners have no provisions in place if key personnel in their company get ill or die, 88 per cent have not set up a formal transition team and most — 86 per cent — have no formal education or training in how to transition their businesses,” he says.
“Business owners will want to search for experienced professionals with a track record of buying and selling businesses,” Gilboord adds.