How to Buy a Business From a Baby Boomer

What are problems facing the younger generations when they try to buy a Baby Boomer’s business?   

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. 

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.

Peter Nola is an Auckland based business broker, author and YouTuber with 20 years’ experience and over $100m of businesses sold, helping New Zealand business owners to buy and sell businesses.