LEADERSHIP STRATEGY: MASTER THE HANDOFF

MASTER THE OWNERSHIP HANDOFF

Radically shifting markets, a plethora of price challenging products, ever changing technology, and the unrelenting hand of time are making the aging owners of small to midsize (SMB) companies vulnerable. For many, this is a new and uncomfortable mindset. Fiercely independent, hard working, and resilient, a significant number are reluctant to consider life without their business. Baby-boomer business owners are typically at the center of operations and can’t imagine their life’s work surviving without them.

by LSI publisher Art McNeil

The largest wealth transfer in history is about to occur.  Estimates suggest that the USA has 9.1 million small to midsize businesses (less than 1000 employees—not including home-based businesses).   Exit planning institute

• A large percentage of SMBs are owned by baby boomers:
• Over the next 10-15 years, an estimated 8 million privately-held US companies will be sold
• Over 66% will not transfer to the next generation
•  The sheer volume of companies for sale will inherently reduce purchase prices due to simple supply-demand economics 
• Business owners that plan ahead can avoid a major dilemma by being prepared for what will soon be a saturated marketplace.

Only the best prepared companies will command an equitable times earnings ratio—that’s if they are salable at all.  Successful transfers will be businesses that are not dependent on the CEO/owner. Personality driven companies are more vulnerable and subsequently worth less than operations guided by a strong management team that is process-disciplined and capable of making leadership everybody’s business.  SMB owners who manage by instinct and personal authority will find their life’s work bypassed by potential buyers and the next generation of family members.  They will be forced to shut down and walk away—leaving them economically challenged and many employees out of work.

Buyers will not be interested if operating details exist largely in the head of the owner.  Also,  a significant number of the next generation want no part of their parent’s hectic life—caused by a “seat of the pants” approach to management. Only SMBs with a strong management team, disciplined processes, and the capacity to operate without the necessity of day to day owner involvement will transfer equitably.

Many baby boomer owners are unknowingly trying to solve today problems with yesterday solutions.   An E-merging millennial workforce cannot perform well in a traditional industrial-age environment.  When millennial entrepreneurs start opening their own businesses,companies that have not adapted to shift age realities will lose their capacity to compete.