Brace yourselves - Winter is coming
In the opening episode of Game of Thrones, the ultimately doomed hero Ned Stark made this speech to galvanise his people to prepare for the leaner times he saw coming.
Much has been written about the economic disturbance caused by the baby boomer population (Born 1946 -64) as they have aged and changed purchasing habits. By the year 2020 the baby boomer generation will be aged between 56 and 74 years of age with the weighting heavily towards the higher age.
The Global Financial Crisis forced many baby boomer business owners to defer retirement plans as the value of their business and non-business (e.g. share portfolios) dropped.
These 2 converging events are likely to create the perfect storm at the end of this decade where the supply of SME’s owned by baby boomers for sale will significantly outstrip the demand for these SME’s by Gen X and Gen Y.
But are you prepared?
The latest survey data (Pitcher Partners) available indicated that less than 25% of business owners have an exit strategy. This is despite over 75% being reliant in some way on the business sale proceeds to support their after work phase of life. With the estimated market value of businesses to transfer management and ownership being valued at some $3.5 trillion, this is a massive shift in control and value without much apparent forward planning.
Combined with the likely constraints of Gen X and Y to free up funds as they struggle to get into the bloated housing market, this will create further downward price pressure on SME valuations and drive market consolidation. The great opportunities lie in those owners wishing to exit getting ahead of the curve and planning for their succession effectively, and for the new generation of owners seizing the opportunity to acquire the best and build great businesses for the next generation. The risk lies with those who do nothing and quite simply miss the boat.
So what stops people from having a plan?
These are some common themes we find
- The discussion goes into the “Too hard basket”. Too hard to have perceived “difficult” conversations with other owners / family members;
- Owner(s) is trapped in day to day firefighting
- Denial - Not wanting to face the potential that there may not be enough
So how do you get started?
When first starting with clients we help them answer (or at least start them on a path to answer) the following questions:
- How are you each currently feeling about your business (Energised? Excited? Frustrated? Trapped?)
- “When would you like to transition to another role / next phase of life?
- Who will take over from you and do they have the requisite capability and desire to do so (important question especially for family run businesses?
- How much reliance do you have on the proceeds of your business to fund your next phase of life
- What assets could you grow to improve the multiple of profit that people will pay.
Answers to these questions are documented and form the start of a value transition plan which is then progressed during the year and discussed and updated at the same time each year.