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The Pros and Cons of Buying Silver Tsunami Businesses
The Silver Tsunami, which is the Baby Boomer generation reaching retirement age, is opening a massive opportunity for entrepreneurs to acquire a business or competitor, and opportunities for real estate businesses to expand their footprint as Baby Boomers begin closing shop. This article from The Guardian says that 51% of privately held businesses are owned by Baby Boomers, and according to the California Business Brokers Association, there are 12,000,000 privately owned businesses with 70% of them expected to change hands as the owners retire.
The opportunities here are various and include:
- Buying an already established business with a customer base.
- Acquiring the property the business was already on to expand your own footprint.
- Taking over a competitor to expand without having to start from scratch and build a brand.
- Having a new location and not having to hire/train employees or get equipment for it.
Nevertheless, there are some risks involved when it comes to pursuing these opportunities.
- Customers trusted the original owners, making it difficult to rebuild trust among existing customers.
- Previous owners who knew they were retiring might have intentionally foregone investing in upgrades/renovations to their building and equipment.
- There could be resentment or culture clashes when you come in as the new owner of the already-established company.
If you’re thinking of purchasing a Baby Boomer business that is folding, closing, or simply for sale, below is some more information on each of the pros and cons to help you decide whether this is the right opportunity for you.
Buying a Business With a Customer Base
If customers already know the business by brand and are loyal, buying an established Silver Tsunami company can lead to immediate sales, with cash coming in the door on day one. If operations are profitable, this gives you an advantage compared to starting a business from scratch. Already-established businesses could have preexisting contracts with buyers, loyal patrons, and a reputation you can build on.
If the previous owner was not tech savvy, you may discover missed opportunities to grow even further. For example, they may have a website that gets traffic and makes sales, but if they never implemented email or SMS (text message) collection, those are great areas to expand into. This could result in building a stronger customer list, boosting sales via discounts or bundle deals, and clearing last year’s inventory to make room for next year.
The advantage of having an immediate customer base could make it less risky for you to test the waters, try new things, and still stay afloat because you have money coming in.
The Brand Was Reliant on the Previous Owner
There is no shortage of articles that talk about the Boomer generation’s preference for phone calls and face-to-face communication, while millennials and younger generations prefer digital communication with less in-person interactions. If the brand was built around the Baby Boomer’s personality and on-site experience, this may be hard for a younger generation to replicate.
It becomes especially true if the audience is older and part of the Silver Tsunami themselves. If the person they relate to is leaving, you’re going to need to find a way to bring in a younger audience or bond with them in an equal fashion. This could make it less appealing to buy the business as the customer base is loyal to the previous owner, not the brand.
If the customer base is loyal to the previous owner try:
- Having the retiring Baby Boomer stay on for two years. This can work to transition customers to you, passing their trust to you as the new owner.
- Asking to test the waters with new marketing methods over the next 3 or 6 months before you buy. This can help you see if you can get the brand to resonate with a younger or a new audience and use the brand equity from the existing company to convert them to becoming customers.
Brand equity can be a strong trust builder, and if it can attract and convert a new audience, the previous owner’s involvement may not matter as much. The second option shows you have skin in the game because you’re investing time and money but carries less risk than buying the company outright without any prior testing.
Acquiring a company is a much larger risk when revenue is tied to a specific person or name, but there is still opportunity, nonetheless. Your goal before buying the business is to see how you can attract new customers who are not reliant on previous owners, so the business can keep growing and be profitable once the owner fully exits.
Getting Priority Properties
If the person owns the building or land, and prime retail real estate is scarce in your market, this could be a perfect way to secure an ideal location for your first or next business. Begin building a relationship with the current owner. If you want to keep their business going as it is in your niche, talk to them about keeping their legacy alive and how you can support that goal.
On the other hand, if you only want the land, ask if anyone has made any offers to buy them out and see what they are thinking. They likely already know there is demand and they’ll want to make money on the sale. But, by establishing a personal relationship, there is a chance they may sell to you at fair market price versus forcing you into a bidding war with others.
Look at which business owners are approaching retirement and begin planning for your ideal next location. Keep a watch for closing and liquidation sales and be ready to make an offer when the opportunity comes up.
If a previous business owner leased the property, talk to the landlords and see if you can take over the lease when their contract is up. Another option is to talk to the owners directly and see if they plan on closing their shop in the next one to five years.
If they plan to close next year but are willing to do it sooner, offer to take over their lease. Not only will you be helping out the previous business owner, but the landlord may also be happy to have someone filling the space without needing to advertise for it.
Having an Established Brand
When the company has an established name, it becomes easier to market. In Search Engine Optimization (SEO), having a brand people search for and a domain that already has links from media companies makes it easier for you to reach more customers.
When consumers have a positive association with the brand, you can grow more easily by having them leave reviews. This works for social media too.
If you’re a local business and a happy customer leaves a positive review on your business’s review page or social media profile, their connected friends will often see that their connection liked it. This may make them more prone to trust your company.
Pro-tip: If customers ask for the previous owner and you’re struggling to break this habit, try running TV or other ads with a theme like “New ownership but the same great quality you love and expect.”
You can also use the brand to build an even better customer experience that may lead to growth. Look at what customers have been asking for, but which the previous owners may not have invested in.
Begin testing and implementing the ideas that you think make sense. This is your opportunity to keep customers loyal and expand the business so it can grow. And having an already-trusted name may make this easier.
Renovations and System Upgrades
Unexpected expenses come with all types of business acquisitions. For the Silver Tsunami, the previous business owners may have “patched” things vs. fixing them as a way to coast into retirement. Now that you own the business, you need them to work for the long run. This means you may need to:
- Update and upgrade software and systems.
- Fix or replace machinery and equipment that is outdated or whose warranties are expiring.
- Renovate outdated lobbies, display cases, and facilities.
If you can negotiate the price of the acquisition down to cover these extra expenses, perfect. If not, financing is readily available. Start with a small business loan from an alternative lender as they offer financial products for renovations, use business bridge loans to get the deal signed if multiple bidders are trying to buy the company, and leverage business expansion loans that can cover everything from the systems that need to be updated or replaced to the renovations that will bring the facilities up to modern standards.
If you cannot get approved for these financing options, you may consider invoicing factoring or merchant cash advances as the business you’re buying already has customers or a book of business. You can use these relationships to fund the renovations needed so that the company can come back to life and begin to scale.
Staffing Expenses, Training, and Savings
Buying an established business from someone retiring could mean there is already a loyal staff who is there for the long run. This can be both good and bad. They may be set in their ways and not want to change over to your new guidelines, which can cause headaches for you. At the same time, it also means you save money on hiring, interviewing, and training expenses.
Talk to the team members before making the purchase and ask them what they’d like to change, things they’ve wanted to do differently, and what they would never want to change. If the team’s vision lines up with yours, this could be an easier transition. When the existing teams do not agree with your vision, and there is no reason other than “this is the way it has always been,” this could be a sign you’ll run into personnel issues and need to replace team members.
Replacing team members when you’re the new boss can cause fear amongst their coworkers, so come up with a plan to ensure everyone can feel secure if they continue to push toward the company’s vision and goals. But don’t be afraid to make changes when it is necessary—you are running a business.
The Silver Tsunami is opening opportunities that make entrepreneurship, business expansion, and becoming your own boss easy. It’s a matter of finding the right business that is a match for you and your goals, and ensuring the acquisition is one that will help you grow more easily when compared to starting from scratch.
QuickBridge does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and accounting advisors.
