Will the economy be rocked by the exit of thousands of baby boomers selling their businesses as they near retirement? The figures and what we fear might be misleading, writes Brenda Ward.
In New Zealand we have around 400,000 registered companies, many of them started by or owned by Kiwis from the baby boomer generation.
As baby boomers start to retire in ever greater numbers, there’s been a concern that these asset-rich Kiwis would all decide to sell up at the same time, in fact, over the next 10 years.
Economists and banks worried that we would face a ‘tidal wave’ of sales as older owners cash up to start enjoying life post-work.
But ABC Business Sales’ Steve Smith, himself a baby boomer business owner, disagrees, both with the numbers and how that generation is likely to behave.
“In fact, we haven’t really seen that trend, and I don’t believe that we will,” he says.
“I think a lot of the ownership statistics are probably overstated about how many people are in that age group and the number of companies that are registered to them.”
His comments come after a survey of ASB customers suggested as many as one in four business owners were considering retiring and transitioning out over the next five years.
Smith says it’s not as drastic as people think.
“The actual number of registered companies with more than six employees and less than 100 employees (small to medium enterprises) is 55,077. That’s because 388,323 registered companies have no employees.
“Yes, 55,077 is still a material number, and our internal research suggests about a quarter of these SME business are owned by boomers, and that translates to only 13,770 businesses needing to be transitioned over the next 10 years, at the rate of 1,370 a year.”
Smith calls 1,370 business transitions a year ‘very manageable’.
“It’s not something I would call a structural shift, or an issue for the New Zealand economy.”
He says there’s also another factor at play. Baby boomers are behaving differently to previous generations as they approach retirement. They might never walk away from their businesses.
“For baby boomers, it’s not all about the money. In most cases, it’s about support for their family and their lifestyle.
“It doesn’t matter whether it’s a small business or a large business,” he says, “they’re not necessarily doing it just for financial gain. They’re more passionate about it.”
He says he doesn’t see that same drive in many of the next generation taking up the business reins.
“When you look at the new generation, I don’t think they’ll have that longevity in business ownership and they probably have different philosophies on how they operate.
“Generally baby boomers started their businesses, or they may have had a succession from their parents.
“It’s really part of their lives and a lot of them don’t on-sell unless something happens in their life that prompts them to make a change.
“If you go to the next generations, it’s not the passion that’s driving them, it’s an opportunity for monetary reward.
“With new generations it’s not necessarily their life. It’s a journey they take for a finite period for different motivations.”
He says he’s increasingly seeing older business owners never intending to retire, perhaps just cutting down to a few days a week, or keeping an active interest in the running of the business. Others are passing companies to family members.
So, what does prompt a baby boomer to sell?
“It might be their health, a family member’s or a business associate’s, or they might have a sudden scare in their lifestyle and think, maybe it’s time to do something else. “But I find it’s likely that something has forced their hand into retirement.” If they do sell, they’re often are looking for different things than the best money from the sale, he says.
“In most cases, they want to know that it’s passed on to safe hands. They’re very particular about who’s going to take their little baby over – and what they’re going to do with it,” says Smith.
“They’re very conscious about whether this person is the right fit. And, in some cases, they’ll take a lesser price to make sure the right person takes it over.
“The key thing is, it’s been part of their life and part of their family.”
Smith is also a baby boomer who started his own business sales agency nearly 35 years ago when he saw a gap in the market that wasn’t being well serviced.
“It started me down a road – and the journey still continues. I never would have believed that I’d still be doing it nearly 35 years later.”
Would he sell his business? No, he says. “What would I do with myself? I think you get to a work/life balance at some stage, that’s the ultimate. You have one foot in the door and one foot out the door.”
Instead, he’s planning a managed transition, because he’s seen a lot of business owners who lose interest in life when they retire.
“When they exit their livelihood, their life expectancy changes because they’re not driven anymore, so there’s this big void and they don’t really know what to do with themselves.”
So, what’s the best way for an ageing business owner to depart?
“I think they should look at a transition period, a sort of a structured buy-out, so the new owner gets to work in the business with them, so they transition it into safe hands over a period of time, rather than just exiting. It’s about handing over the reins.”
So, if there’s not a tidal wave of sales, what does that mean for buyers and sellers?
Smith says: “If you’re a buyer and you find a business that meets your criteria, just go for it and don’t wait around for the perfect business, because there’s not a plethora of businesses coming to market in the next 10 years, as you might have been told.”
For sellers, the key requirements for maximising value haven’t changed, he says.
“Be prepared and use a professional to sell your business to give yourself the highest chance of getting the best result.”
Steve Smith is the owner of ABC Business Sales