What are problems facing the younger generations when they try to buy a Baby Boomer’s business?
In this video I will talk about the modern, young business buyer and their style of business
management when compared to that of a Baby Boomer’s way of running a business.
With this knowledge, it will be easier to understand both points of view, and that will
make buying the business an easier process for both parties.
Much has been made of the wave of ‘Baby-Boomer’ business due to hit the market and the various
impacts this is likely to have.
As an aside; many of these commentary’s take little note of the significant impact
of immigrant business buyers or the significant capital created by the recent real estate
booms and thus probably understate the number of willing buyers in the market.
That being said, I do think there is another issue facing many of these businesses that
often goes unnoticed.
If you would like to know the fact from the fiction of the big baby boomer sell-off, check
this out here.
The issue we have is one that requires translation between the generations – or at least their
prevailing attitudes towards work and business ownership.
A large number of the financially solid buyers I work with are probably better termed ‘investors’;
or more accurately ‘aspiring investors’.
They are either unwilling or unable to become the all-encompassing Working Owner that owns
and operates a business fulltime.
They’ve often got a strong management skillset and believe, often correctly, that they can
add significantly value to an organisation in this capacity without the day to day operational
involvement.
A larger number of the better businesses we see coming to market are owned by Baby Boomers.
They are a generation that hold the good Kiwi value of Hard Work in high esteem.
To this end, management of their businesses has never been transitioned to staff or their
workload reduced.
You can just hear them saying “why pay some other bugger to do it when I can do it myself;
and if I do, they’ll probably stuff it up anyway!?”
In fact, many of these owners derive significant identity from their work and can’t see why
their staff should be working if they’re not.
The majority of buyers are now tending to come from a different generation; one that
focuses on return on investment and is searching for more work-life balance.
This new generation have often generated their funds through property ownership whilst working
within corporate organisations.
This, arguably, more sophisticated view of management or business structure is somewhat
at odds with the very businesses they’re looking to acquire and so many good opportunities
are discarded as being ‘too dependent on the owner’.
This disconnect requires deeper levels of negotiation in order to transition the business
successfully from one ideology to the next.
I’d suggest that this is where the opportunity to create value lies for astute purchasers.
Many of the business owners I work with are more than willing to consider extended handovers
or customized transition plans involving extended consultancy periods.
An incoming buyer could well utilise this time; not just to learn the business themselves
but also recruit a new General Manager or CEO who can then learn directly from the current
owner.
Rather than only considering businesses that have already been transitioned to non-working
owner management; and these businesses command a premium price; savvy buyers would do well
to investigate the alternatives.
A buyer willing to invest the time in working through possible transition processes will
likely acquire a better business; generating a more favourable return on investment and
still achieve the same result.
I’d suggest that buyers willing to actively engage in resolving this issue through negotiation
and deal structure are far more likely to secure the top-quality businesses they’re
looking for.
Thanks again for watching.
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Until next time.
See you again.