Now that the tidal-wave of baby-boomer businesses have started to flood the market, what are the best strategies that Gen-X and Y can adopt? Here are some ideas…
Now that the wave of baby boomer-owned businesses for sale has started to hit the market, it is a good time to consider what strategies the next generation of business owners should undertake. Key issues are what sort of businesses they should target, how can they finance the purchase, and when will be the best time to buy.
There is no doubt the businesses providing the best return on investment on a pure price earnings ratio are the smaller businesses in the traditional owner-operator heartland of retail, hospitality, transport and personal services.
One of the reasons for this is the high level of involvement, and to some extent reliance, on the owner to make the business successful. The upside of this is that if you have the skills and the energy you can dramatically transform the revenue and profitability of some of these businesses.
This is particularly true if they are operating below their potential due to the current owner having settled into a comfort zone heading into retirement. Something to watch out for in these spaces is the level of franchise activity – there is some evidence to suggest that this is pushing prices down on traditional businesses.
Funding the purchase is probably one of the biggest hurdles for Gen-X and Gen-Y as many are already in considerable debt due to record levels of home mortgages. However those who have been in the property market for some time may in fact be able to obtain additional finance due to the increased value of their property relative to their existing mortgage.
Another key consideration in your choice of business – cashflow, and not just the annual turnover but the regularity and reliability of the income. Ideally you should try and keep your business finances separate from the home and there is a range of business loans and financing options available to businesses with strong cashflows. Given that some businesses are selling well under two times earnings, obtaining a business loan against this level of cash flow is a distinct possibility.
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Forecasting the market is far more difficult. In the last three quarters the BizExchange Index survey has returned a mixed forecast with nearly half expecting prices to stay the same, and the others almost evenly divided between prices rising and falling.
Perhaps a more pragmatic approach is to ensure that you know what sort of business you want to buy, understand how much you are capable of paying, and then monitor the market for any businesses that match your criteria.
In reality the market fluctuation in value is unlikely to make an unsuitable business for you a better proposition than a suitable business. If you are fortunate you will buy your ideal business at the bottom of the market – but that is unlikely to be something you can plan.
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