Why start from scratch when you can skip the start-up costs and turmoil?
Retiring Baby Boomers currently control $10 trillion in business assets. These businesses are established, with clientele, suppliers, and a reputation. Over the next 10 to 15 years, almost 12 million businesses will be sold or transferred. With that many deals available, there’s an unprecedented opportunity for enterprising Gen-X and Millennials who can grow an old business with new technology, processes, or markets. Do you know what to look for to find a great deal on a business for sale?
Keep these tips in mind when buying a Baby Boomer business.
Due Diligence for Small Business
Do your due diligence! Over the years, the owner of this business likely have not had good accounting and bookkeeping practices. These owners have often not had to answer any financial questions about their business from anyone but the IRS. Very frequently, there are “skeletons in the closet” of these companies, like:
- Old inventory that is worthless and overstate profits
- Bad debts that will never be collected
- Sales and use tax liabilities and penalties
That doesn’t make them a bad investment – in fact, discovering these facts could give you leverage to negotiate a better price. Do your homework and due diligence.
Get a good business valuation
How much should you pay? What if you offer too much and get ripped off? What if you offer too little and miss the bid? The cost of a good valuation is worth every penny. Just last month we helped one customer negotiate the purchase price down $500,000 using an unbiased valuation as evidence. Use a third party –someone that has no interest in the company or business outside its fair valuation. Once the valuation is complete, review it carefully with the owner to understand why certain multiples or pricing structures are being suggested.
There’s nothing worse than realizing you overpaid for a bad company.
Grow a small business with technology
Many Baby Boomers have been doing business “the good old way” for 20 years. Their businesses are successful without the added stress, to them, of adopting new technology. We see this all the time with paper bookkeeping, undocumented processes, and tribal knowledge.
Millenials and Gen-X’ers know there are relatively easy technology additions the new owner can make to streamline and automate processes such as customer support, lead management, and accounting. As the new owner, find those “easy wins” to make the business more profitable.
If technology is not your expertise, build a team that is strong with technology so they can manage the implementations for you. Outsourced marketing, advertising, HR, finance and accounting is standard in small business now, yielding better results for a lower cost.
Partner with great companies
As the new owner of a company, it’s worth it to find a partner that can help find those easy wins, particularly for operations, accounting, and bookkeeping. Today’s technology tracks inventory and sales and helps automate bookkeeping and accounting tasks. Automated dashboards put you in command with actionable data and complete perspective.
Doing your due diligence and getting a good valuation is the backbone of a great business purchase. Combine a proven client list and product with updated systems and reporting, and you as a new business owner buying a Baby Boomer business starts light years ahead of your competition.
Want to learn more about the new tax law? CFOshare can help. With more than a decade of experience, our team provides worry-free financial and operational services to entrepreneurs, small businesses, and nonprofits. Contact us for a free 6×60 review today. We’ll sit down with you for an hour to discuss your specific needs.
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