As the Baby Boomer Effect Sets In, There Are Ways for Connecticut Businesses to Get ReadyMay 31, 2016
Chief Marketing Officer
When the famed Baby Boom was taking place between 1946 and 1964 and America’s population was exploding as it never had before and never would again, people marveled at the potential for expansion and exploration that came with it. It’s unlikely, though, that many thought ahead to when the Baby Boomer Generation would near retirement age.
That time is now upon us. And the effect it is having on our state’s economy—as well as the entire nation’s—is tremendous. As Baby Boomers who have owned long-established small and medium-sized businesses now approach retirement age—many of them are already there—these owners need to have a plan for transition in place if the business is going to last. Serious questions need to be asked about how the state’s business sector will handle this change and how these transitions are planned and managed.
If businesses better position themselves with a responsible and comprehensive plan for succession, and start early enough, they will be ahead of the game. Succession planning does not mean retirement, at least not right away, but instead is all about instilling business competencies and experience in family members or employees who are interested, rather than simply handing over the business.
Questions need to be addressed, such as:
- Does the next generation (a child or other relative) want to take over the business?
- Is the next generation ready to take over, or possessing the skills to one day do so?
- Is an outside party, such as a private equity firm, the solution instead? If so, what does that mean for the workforce?
This changing face of privately held business in Connecticut is the focus of the first installment of a study recently released by BlumShapiro and the University of Connecticut, entitled “The Baby Boomer Effect”—it will be a multi-part examination of the impact the aging Baby Boomer generation will have on Connecticut’s economic well-being. The study begins with some jarring demographic information—today 42% of Connecticut’s businesses are owned by Baby Boomers, and that number is expected to rise to near 50% by 2025—which will require business owners to take a strategic and carefully considered approach to the future of their business. And the sooner the better.
The question then becomes one of transition readiness for Connecticut’s businesses. This means examining the financial outlook of the next 3-5 years to gauge viability and profitability as the transition process begins, maintaining a proper inventory of assets and examining the workforce to ensure the right people are in the right positions.
The good news is there are a number of key value drivers that businesses can put in place to ensure they are prepared for transition. These are essential steps that will leave the business much better equipped for the changes to come.
A growth strategy backed with supportive data and analytics—Buyers want to see a formal and well thought-out plan for the business which addresses the fundamentals. Products and services, customer segments, strategic partnerships, operations, people, supportive technologies and risks should all be addressed and supported by accurate data.
A proven and strong management team in place—Most businesses are highly dependent on their people. Having a strong and stable management and operations team will drive additional value, and can also ensure the business is not simply dependent on any one individual.
Positive cash flow that shows sustainability—This is fundamental for the valuation of any business. Providing historical, current and projected financials that support an asking price are obviously the cornerstone of any deal.
A solid customer base—Buyers will be very focused on the makeup of the existing customer base along with your customer acquisition strategy. The rule of thumb for many businesses is that no one buyer should represent more than 10% of total sales. The makeup of an ideal customer base will be diverse, thus limiting the risk from any single loss.
Appropriate financial controls—Dependable financial controls are not only essential to support the claims of the business’ financial condition, but are fundamental to managing any business.
Infrastructure to support the ongoing business—Showing that the business has the appropriate means to support current and future market demand and respond quickly to opportunities will be an important factor in any sale. Making strategic investments prior to the sale of your business will pay dividends in the valuation of your business. Owners should also consider conducting a pre-due diligence assessment, which will help to identify any concerns that a buyer or financer might have in these areas. It will also ensure a clean and quick due diligence process, increasing your odds of a successful transaction.
As we move towards the next decade of unprecedented changes in the workforce, one fact becomes clear. The impact that retiring Baby Boomers will have on Connecticut’s economy cannot be ignored, and if proper attention is paid to this “Baby Boomer Effect,” on a business by business basis, the entire state can benefit.
Thomas DeVitto is Chief Marketing Officer of BlumShapiro, the largest regional business advisory firm based in New England, with offices in Connecticut, Massachusetts and Rhode Island. The firm, with over 400 professionals and staff, offers a diversity of services which includes auditing, accounting, tax and business advisory services. In addition, BlumShapiro provides a variety of specialized consulting services such as succession and estate planning, business technology services, employee benefit plan audits and litigation support and valuation. The firm serves a wide range of privately held companies, government and non-profit organizations and provides non-audit services for publicly traded companies.