A generational shift is about to take place in the ownership of U.S. businesses as aging baby boomers plan to sell their companies.
Individuals over the age of 55 own 52.3% of all U.S. businesses, including 22.8% owned by those 65 and older, according to the 2024 Boomer Entrepreneurial Report by LendingTree. As those owners get older, most will look to sell their businesses. But to get to that point, owners need time to prep for the sale.
“A business is a person’s most valuable asset, and it needs to be treated that way when they’re preparing to sell it,” says Aaron Faulkner, Northeast Region president for Bank First. “It’s never too early to start planning your exit.”
Travis Froze, president of the Northeast Wisconsin Market for First Business Bank, agrees business owners need to start planning years in advance.
“You have to start out early — you should be ahead of the ballgame at least five or even 10 years in advance,” he says. “There are so many things to get into place and to consider.”
Some of the areas on which business owners need to focus include getting accounting practices up to par (prospective owners appreciate accurate, audited numbers), determining their role (if any) after the sale, tax implications and getting policies and procedures in place that help the business run smoothly, says Jayne McQuillan, president and owner of Journey Consulting, LLC in Green Bay, who works with business owners on preparing their businesses for sale.
“If your business is good, it will sell no matter the market,” she says.
An essential part of preparing a business for sale is making it as turnkey as possible, Faulkner says.
“I talk with business owners and ask about their management teams. I ask, ‘Can you step away and have everything run well?’ It’s hard for owners to give up control, but that’s what’s needed if you’re going to sell,” he says.
Businesses where owners are a key cog in the wheel — for example, they have all the customer contacts — can be harder to sell since there are personal connections the new owners likely won’t have, Faulkner says. Transitioning that to someone else on the team is a good first step.
As owners prepare for a sale, Froze says, they need to think about what kind of buyer they’re seeking.
“Some are concerned about their legacy — do they want the company to have the same name, stay in the same place and retain the majority of workers or are they looking for the biggest payoff?” he says.
Froze says an owner may need to decide between a higher offer from a New York firm that’s more interested in buying the business’ assets and cutting costs (and employees) and a local or regional buyer who is coming in at a lower price but interested in keeping the name and employees.
“There’s a lot for business owners to consider, and everyone is different about what’s important to them,” he says.
When businesses do not sell, McQuillan says, the main reasons include a price that doesn’t accurately reflect a business’ worth or a customer base that is not diversified.
“If a business is 50% or more dependent on one customer, a potential buyer may have second thoughts since the business will be worth a lot less if they lose that customer,” she says. “That’s why I tell owners thinking about selling to diversify their customer base as much as possible.”
Besides getting the business ready for sale, owners need to prepare themselves as well, Faulkner says.
“Owners need to be personally prepared — what is their next step? What are you going to do with your time? Are you financially ready? How much do you need to get out of your business to be OK financially? These are all questions that owners need to think about,” he says.
McQuillan says owners should also decide if they want to stay involved with the business once the sale is complete. “Do they want to be involved during the transition, or are they done once the papers are all signed?” she says, adding that if an owner stays on, it’s most likely a year or so.
McQuillan says those considerations come into play during the sale negotiations. Some buyers may want an owner to stay on for six months to a year to help with a transition, especially if the owner was the main customer contact.
“I like to ask my clients what their plans are — they’ve been working hard all their life and now they’re done. Do they want to travel, volunteer? … It’s important they have a plan for what they are going to do next,” she says. “The adjustment can be hard for some people.”
Changing buyers
When Froze first joined the banking industry in the 1990s, most owners passed down their business to the next generation. Now, selling to the next generation or another family member is rare.
“Baby boomers really don’t hand their businesses down to the next generation. I don’t know why — if it’s because of lack of interest from family or another reason,” he says.
Faulkner says reasons can be diverse interests and worry about debt — a business owner in her 70s may have children in their late 40s or 50s who aren’t interested in taking on new debt at that age.
“When there is a family business, you need to have open dialogue about what’s next,” he says.
Some business owners may look instead to the current management or employees as possible business buyers to keep things running smoothly without too many hiccups.
“I think looking at an ESOP is something every owner should at least consider when they are looking at possible sale options. There are so many options out there; this is just another one,” Froze says.
If a business owner is planning to sell to someone in the family, McQuillan says the process can take five to seven years as the potential new owner learns everything they need to successfully run the company.
“If you’re planning to sell the business to a family member, it’s important you still have other options in place in case it doesn’t all go to plan,” she says. “You don’t want to put all your eggs in one basket.”
Faulkner says, “The right buyer is someone who is passionate about the business. It could be the owner of a similar business or an adjacent business seeking to expand into that area.”
Holding on
Some business owners never get to the place where they are ready to sell their business, McQuillan says.
“It’s been their whole life, and they don’t know what else to do,” she says.
An owner running a business until they can’t anymore due to death or health issues leaves the company and the owner’s family in a tough position. The business then needs to hustle to get sale-ready, which “means not all of the boxes have been checked, such as having policies and procedures in place, clean finances and more,” which can make the business harder to sell or sell at a lower price, McQuillan says.
When business owners don’t properly prepare to sell, there’s a chance the business may close, costing workers their jobs and leaving family members without any of the firm’s value.
“That’s why I stress it’s important for owners to begin getting their businesses prepared for sale several years in advance, even if the owner does not have a specific date in mind,” McQuillan says.
Faulkner says owners are going to exit their business at some point, and it’s better if they are the ones making the decision.
“You need to prepare and plan when it happens. You want to be ready when the time comes,” he says. “The time is now to get ready. You don’t want to look back and wish you had taken different steps to prepare your business.”
