lot of these baby boomer businesses will fall well short of their owners' financial expectations because so many will fail to plan properly and with supply outweighing demand, not many will overpay when their is viable alternative available. In other words, the shift is going to be towards a buyers market and businesses should start making efforts now to become strategic buyers.
There are generally two recognized types of buyers: strategic buyers and financial buyers. Without delving to far into the details, strategic buyers generally purchase businesses and assets that are meant to grow their existing business by expanding customer base, lowering cost of operations, increase production output, expand product offerings, etc. Financial buyers are generally businesses that invest money into businesses with room for growth and a competitive advantage. Financial buyers do this in the hopes of receiving a return on their investment.
Even if you have never thought about being a strategic buyer before, now is the time to position yourself and your business appropriately for such an endeavor. Let's say that you are the owner of a small manufacturing plant. Business is going well for you and things are growing organically. You can stay the course and maybe you continue to grow organically. Things could possibly level off. And there is always a chance that things slow down too.
If you position yourself as a strategic buyer you can take more control of your business' future. Your small manufacturing company can purchase a completing business. Chances are this purchase is going to be for a reasonable price if not under the market value. If planned right this acquisition can do more than just expand your current operations. This business can possibly have more favorable contracts, better lines of distribution, key employees that can add more value to your existing business, a better location, a more diverse customer base, stronger intellectual property or any other aspects that could potentially add value to your business in addition to the increased revenue.
There are other potential businesses that might make sense to acquire that are not competitors of your business or even in the same market as your business. A business can have certain synergies to your existing business and purchasing that business will help increase productivity or capabilities. Think of our small manufacturer above. A possible good business to buy would be a trucking company. This could possibly lower the price point of products because shipping costs are decreased, expand territory if shipping issues limited where products could be sold or increase the volume of products sold because bottlenecks waiting for third-party shipping companies to take product away are eliminated.
There are any number of options for growth if you position yourself to be a buyer in the coming years. Businesses that transition to second generation ownership often struggle and so there can be a possibility of merging with those entities to stabilize them and increase your business' capabilities and revenue. All of these options, if planned appropriately can quickly grow your business multiple times over.
The important thing is to plan because you do not know when an opportunity will present itself. Connecting with the right people that have experience in these types of transactions can help guide you to where you need to be. Additionally, these people can assist you in understanding what type of opportunities you should be looking for and connect you with those that can help find those opportunities.
There will be winners and losers on the seller's side of the coin when the baby boomer business owner bubble pops. One the flip side of the coin, there will be winners and losers on the buyers side too. Positioning yourself to take advantage and grow your business will make you a winner.