Business Brokerage .
Steve Skrlac, MBA, CFA
sales representative
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Serving Toronto / GTA / Southern Ontario
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Contact us to sell or buy a business in Ontario, Canada
Steve Skrlac, MBA, CFA
Toll Free: 1-866-289-5171
Steve Skrlac, MBA, CFA
Toll Free: 1-866-289-5171
Sales of Businesses Where Retirement is The Motivation To Sell
A large proportion of business buyers enter the marketplace with a fair degree of skepticism. The business for sale market is not an efficient marketplace as there is a fair amount of information asymmetry in the sense that not all companies listed for sale are viewed easily by all purchasers. Some unethical buyers even try to withhold information that may be considered detrimental to their valuation. For these and other reasons, buyers are usually skeptical, if not cynical, after being in the market for even a short period of time. Because of this, investors have come to view the sale of a business for retirement purposes as a positive factor.
This article will examine some reasons why retirement sales are seen in a more positive light and will consider if there may be a premium place on the selling price of the business because of it.
Why Businesses For Sale For Retirement Purposes Are Desirable
There is (theoretically) nothing wrong with the business
Many business owners see the sale of their business as a viable exit plan should the financial results suffer. The reality is that a business that is on the downswing is very difficult to sell. Buyers usually do not want to assume a problem from day one. Businesses being sold where the owner is retiring, on the other hand, may not suffer from a stigma that there is a deficit of some sort with the venture. There may be nothing wrong with the business other than the fact that the owner wants to stop running it. If that is truly the motivation for the sale, it is a compelling story to tell.
There is a reduced risk of competition from the seller
Some buyers fear that once they buy a business that the old owner will simply hang a shingle across the road and poach all of the customers. Even with binding non-competition agreements and legal documentation that has been signed, this fear persists. A business seller who is advanced in years and has a clear vision to stop working gives a greater degree of comfort to the investor.
The seller may consider staying on part-time
In the sale of a business, one of the primary drivers for most purchasers is that the operations get transitioned properly. The purchase price in most small business sales is comprised of intangible goodwill. It is critical that a buyer be able to transfer that goodwill in order to fully realize a return on their investment. If the old owner stays on with the company there is a significantly less chance that the customers will look elsewhere for a new vendor. By having an extended transition period of a scenario where the seller works part-time, the risk of goodwill being eroded is somewhat mitigated. This arrangement may best suit a retiree in that they may not want to stop working altogether but simply want to slow down. This strategy would afford them that lifestyle.
Retirement sales usually means the business has been in operation for several years
Often, in the retirement sale of a business the sellers have been operating the company for several years. Buyers like companies that have a long history of successful operation. It minimizes overall risk if they know they are taking over a stable, profitable business with a tenure of success.
A retirement business sale is usually not one where the company has been in operation for one or two years and the owners wish to exit. Such situations raise red flags for sellers.
Is there a premium for retirement sales?
This is a difficult question to answer. Theoretically speaking, a savvy investor would be willing to pay more for a company with a lower overall risk profile, given the choice. Selling your business for retirement purposes usually does represent a situation where the perceived investment risk is lower for the reasons stated above and that could translate into a more stable stream of future cash flow for the investor. That being said, a retirement small business sale must be viewed holistically through the lense of the overall investment. It is advisable though to consult with your professional advisors such as a chartered accountant and solicitor before buying any business.
What is the near-term opportunity to buy a retirement business for sale?
The sheer volume of small businesses that will be listed in for sale in the Greater Toronto Area and southern Ontario, Canada in the coming years is staggering. Baby boomers are retiring in record numbers and since they represent that largest cohort in existence, clearly there will be more opportunities to buy retirement businesses. Talk to business brokers in Toronto that have worked on business exits for retirees. There are nuances to the selling process and emotional sensitivities that are required for selling such businesses that a good business broker can discuss with you.