Selling Your Business | Generational Handovers & Losing Money

The 3-5 Years Before You Sell Your Business

By Josh Manifold | Principle | Advisor

I recently sat down for an interview on succession planning with Scott Hackman of Scott Hackman Ventures. Scott has been operating in this space for 20+ years and has seen an incredible spectrum of experiences–good and bad.

One of the key soundbites from this interview started with the question: “If you could wave a magic wand and meet a business owner X amount of time before this targeted outcome, this targeted liquidity event, how far in advance would they be engaged with you and your team?”

If you don’t watch the video, here are my two top takeaways from his answer:

1. Organizational change is a long process–overseeing both the people and the finances of a business requires exceptional stewardship. Vetting and preparation take time.
2. You need your full financial team at the table. There is a spectrum of outcomes, both for the sale and its impact on your own plan. Have your advisor, CPA, estate attorney, and whoever else can help provide that perspective involved in the process.
   If you own a business, your exit may be the single most important financial decision you will ever make. Give yourself plenty of runway. Engage a strong financial team. Exit well.

Generational Handover: According to a new report from a business brokerage and research site (BizBuySell), the number of small businesses being sold is quickly rising. Trillions of dollars of wealth is slowly being transferred by boomers selling their businesses to a younger generation looking to build their own.

According to the U.S. Small Business Administration, more than half of the nation’s small-business owners are over 50, and approximately 21% of the population were born before 1964. As of February 2024, baby boomers owned about 51% of the privately held businesses in the U.S. and about 3 million businesses valued at $10 trillion.

Age, economy, tax, and political factors are motivating the generational transfer. Capital gains rates are historically low (average of 20%), estate tax exemptions that could change with November’s election, and general aging are motivating the boomers to sell to millennials.

BizBuySell reports that 35% of today’s buyers identify as corporate refugees and desire to exit “corporate America for the independence of small business ownership.”

What’s Selling?: Conditions in the housing market are notably better in the higher-end market and with cash buyers. The “meat and potatoes” of the U.S. housing stock isn’t looking as favorable:

How to Lose Money: Serious investors’ doubts about the leading AI stocks (Nvidia and Super Micro Computer) have become obvious recently. Investors in three artificial-intelligence-themed-exchange-traded funds managed to lose money this year. This AI fund disaster can serve as a cautionary tale for buyers of thematic ETFs. A recent Wall Street Journal article said, “You probably won’t get what you want, you’ll likely buy at the wrong time, and it will be hard to hold for the long term.”

Read the full article here. The takeaway is to not buy based on the name of a fund—consider holdings, whether it does what it says, the index it follows, and how it’s structured. It’s always tempting, but it’s pretty much guaranteed in life that getting rich quickly isn’t possible.

Fulfilling Our Dreams: We might add “Playing for the Phillies” too …

*The views expressed are those of the author as of the date noted, are subject to change based on market and other various conditions. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax or legal advice. Keep in mind that current and historical facts may not be indicative of future results.