Baby Boomer Elevator Music

When did Rock and Roll transition from the anthem of rebels to elevator music?

I’ve been traveling for the last few weeks. Whether on business or vacation, “classic rock” is the background sound in airports, supermarkets and shopping malls. Restaurants and casinos have traded Montovani and 101 Strings for the Rolling Stones and Pink Floyd.

Light soundtracks, like at the resort pool, usually include early 60s, 80s dance tunes (Disco) and Motown hits, but for the most part the playlists are dominated by rock from the late 60s to the late 70s.

Rock as Elevator Music

Television commercials are loaded for Boomers. Some thematic riffs are understandable. Dodge and “Smoke on the Water,” Cisco and “Baba O’Reilly, ”  or Mercedes-Benz and “Green Onions.”  In other cases it’s hard to associate luxury brands with their themes. Led Zeppelin for Cadillac? Jefferson Airplane for Tommy Hilfiger?

Sometimes I wonder if they have anyone over 30 (Remember “Wild in the Streets?) at the marketing agency, or even someone who actually listens to the lyrics. News flash to Wrangler; John Fogarty’s “Fortunate Son” (“ooo… that red white and blue”) is not a patriotic theme. And to Acura; “Please allow me to introduce myself” refers to Satan, not a car model.

I know you aren’t supposed to actually listen to background music. It’s a good thing. Walking down the supermarket aisle, I’ve heard “…living on reds, vitamin C and cocaine,” “One pill make you larger…, and “I woke up in a Soho doorway. A policeman knew my name.” I sometimes wonder why moms aren’t hustling their kids out of the store.

Of course, the music appeals to the demographic with the highest disposable income in history, the Baby Boomers. When it stops, we can probably assume that a generation has moved on. Elevator music is an indicator of influence.

Posted in Life After, Thoughts and Opinions | Tagged , , , , , , , | 3 Comments

3 Responses to Baby Boomer Elevator Music

  1. Mike Havel says:

    When my wife sends me to the grocery store, I hear thunder and smell rain as I go thru the produce department, Faint cackle of chickens as I pickup the eggs, Cows mooing when I grab the milk. I was afraid to go down the toilet paper aisle !!

  2. John Hyman says:

    Or perhaps the music is chosen because the decision maker/owner/manager has a personal liking for that music genre, without any regard for the public perception it paints that business with? How do you want your business to be perceived? The music is one element of that. Frankly, I find rock music at an upscale restaurant or shop is often unaligned with their menu or merchandise. Isn’t the music supposed to set the proper mood?

  3. Tracey Cheek says:

    Did you know that “There’s a Bad Moon on the Rise” (CCR) is very often misunderstood to say, “There’s a Bathroom on the Right”. Seem appropriate for the Baby Boomers in the airports, supermarkets and shopping malls, don’t you think?

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Selling Your Business – the Buyer’s Eyes

Selling your business is much like selling a house. In order to realize the highest price possible, you want it to look its best.

The other day I passed an independent gas station/convenience store. The marquee at the curb advertised  their price for “unlead” gas. Really? Unleaded fuel has been required for new cars since 1975. Lead was completely banned as an additive 22 years ago. That means anyone who has bought a new car in the last 40-plus years, and every driver under 40 years old, has never purchased anything but unleaded gas.

What does that indicate about the maintenance of the business? If it has been decades since they updated their sign, what have they done with their refrigeration, roof, and other, more costly items of the infrastructure? Their P&L and cash flow are suspect, and due diligence will be more extensive. All because the first thing you see is an outdated sign.

First Impressions Count

In Steve Martin’s “LA Story” his girlfriend (Marilu Henner) checks her wardrobe by closing her eyes, spinning around in front of the mirror, opening her eyes, and removing the first thing she notices.

Very early in my working career I was in retail. My training manager taught me the same technique. Each day I walked out to the edge of the street in front of the business. I stood with my back to the business and my eyes closed. “Pretend you’ve never done business with us before,” he told me, “Then turn around, open your eyes, and see how our business looks to a new customer.”

I’ve used that exercise ever since. When I was actively brokering businesses, I remained acutely aware of first impressions. A parking lot with weeds in all the cracks or sidewalk seams. A front office with stacks of unfiled invoices on top of the cabinets. A conference room with six month old notes on the whiteboard. An owner’s office that doubled as storage for samples.

My favorite is the “Employee of the Month” board that was last updated years ago.

Staging for a Sale

Most small business owners seeking to sell ask “What can I do to get the best price?” Surprisingly, many pushed back on my staging suggestions. “I’m selling a profitable business, not a parking lot.” “Those invoices show that we are busy shipping product instead of filing.” “If a new owner wants to reinstate the employee of the month, the board is there and ready.”

Selling your business isn’t a joking matter. I want to do the best job I can for the client. If the first suggestions I make are shrugged off, what will happen when the client has to execute the more difficult tasks like preparing due diligence information?

Fortunately there were other brokers who would gladly list any business, in any condition. I was happy to let these brokers put in the effort. My time was too valuable to invest in a client who refused to see his business through the eyes of a buyer.

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Subordinated Debt in an Exit Plan

Subordinated debt can be a key consideration in any sale transaction. Whether you are contemplating a sale to a third party or an internal transfer to employees, the topic of taking second place to a lender will likely come up.

If an outside buyer is financing the purchase, seller notes can be considered as part of a down payment, but any bank will require it to hold second priority to their loan. If the Small Business Administration is involved, they will usually demand that the seller assume some of the risk with a secondary loan. In an internal sale, that will be a requirement.

Risk vs. Reward

As a business owner, you make decisions about good risk and bad risk every day. You extend credit to customers, and spend money on marketing or expansion based on your projection of a future payoff. Subordinated debt is just another risk/reward consideration.

It may allow you to get a higher price (eventually) than demanding an all-cash deal. It can also be the deciding factor in qualifying a buyer for outside financing for the majority of the purchase.

In an internal sale, subordinated debt is frequently a trade-off for time. An exit date may be your choice, or driven by outside factors such as health, family needs or increased competition.

When your target departure date is close, especially if it is two years or less, it is difficult to transfer enough equity to employees for them to qualify for 100% outside financing. The percentage of  the risk that you are willing to bear has a direct impact on what another lender will do.

If you need to leave in less than a year, financing the entire transaction might be your only choice.

Qualifying Subordinated Debt

Some brokers tout the tax advantages of installment sales with 100% seller financing as the best way to sell a business. In my experience, it is more likely to attract unqualified buyers. No reduction in tax rates comes close to the advantages of cash in your pocket.

It’s true that unsecured loans usually carry a higher interest rate due to the lack of security. That might be tempting, but no interest rate is attractive if you don’t get paid.

As a lender, you have the same interest in choosing a qualified buyer as the bank. Using subordinated debt to serve your purposes is a valid tactic. Using it simply because you are the lender of last recourse is probably not.

 

Posted in Exit Options, Exit Planning, Exit Strategies | Tagged , , , , , , , , , , , , , | 1 Comment

One Response to Subordinated Debt in an Exit Plan

  1. Eric Seifert says:

    Right on point.

    Except you will find different banks with different parameters for their SBA loans, all within SBA’s SOPs. Some more aggressive than you described. Without a one year window.

    It’s a great environment for transactions.

    On with the boomer tsunami.

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Exit Planner Spotlight

Kudos to our ExitMap Affiliate Jim Wisdom in Westlake Village, California, who has this article published in The Pacific Coast Business Times last week.

Prepare for an Exodus of Business Owners

Throughout their lives, baby boomers have had a profound impact on our society. One key reason for their large influence is the sheer size of their generation, which is estimated to be about 76 million people.

According to John Dini, a prominent exit planning strategist and author of the book “Your Exit Map,” Baby Boomers formed businesses at a rate 250 percent greater than the norm from 1976 to 1985 — a rate that hasn’t been approached since. Dini discovered these statistics after reviewing data from the Small Business Administration, the U.S. Census Bureau and the Department of Labor.

So, why are these statistics important? Because baby boomers, who are exiting their businesses in increasing numbers while also phasing into retirement, are headed toward a demographic “headwind” that they may not even realize yet. This headwind could severely limit the boomers’ ability to meet their objectives of transferring their business interest when they want, to whom they want, and for the amount of money they need.

Let’s take a look at the staggering numbers. Of the estimated 28 million businesses in the U.S., anywhere from 3 million to 5.4 million are owned by boomers with five or more employees.

The key problem? There are projected to be far more sellers of businesses by boomers in the next seven to 10 years than buyers looking to acquire businesses. In addition, the buyers are likely to be Generation X buyers, which represents nine million fewer individuals and has a different outlook on life and work than that of the workaholic boomers.

The Tsunami

The number of boomers that are currently reaching age 65 is about 10,000 a day. That number translates to about 100,000 business owners reaching retirement age each year.

However, the brokerage industry only sells about 8,000 companies a year. The mid-market (M&A and private equity groups) accounts for only another 1,000 per year.

Using the most realistically conservative assumptions possible, we are still short on third party acquisitions by 6,740 a month, or 300 per day for the next 20 years. Boomers can delay their decision, but not indefinitely. They will eventually exit their business — voluntarily or involuntarily. Notes Dini: “Sooner or later every business owner leaves his or her business, and the transition of the boomers will be like nothing ever seen in the small business universe.”

Some business owners believe that an Employee Stock Ownership Plan is a viable exit alternative. While ESOPs can be an attractive exit option for the right seller, the owner has several requirements to meet. ESOPs are an ERISA Qualified Benefit Plan, and they require (among other things) annual audited financial statements, annual certified appraisals and compensation testing. The cost of implementing an ESOP generally ranges between $250,000 and $750,000, as well as $50,000 per year for ongoing compliance.

What should boomer business owners do? Ideally, they should start the exit planning process at least three to five years (or more) prior to their exit. There are two key theoretical exit dates that the business owner should have in mind: the date they stop managing the business on a daily basis and the date they divest themselves of the company. It’s impossible for business owners to effectively plan their exit until they establish at least a theoretical target date for these two events.

Also, the business owner should retain an exit planning adviser who is skilled in coordinating the exit planning process with the other advisers that are integral to the process, such as attorneys (business and estate planning), a CPA, a financial adviser and insurance professional.

In summary, the longer the lead time for exit planning the better. In his book “Finish Big,” author (and columnist for Inc. Magazine’s “Street Smarts”) Bo Burlingham studied business owners who were either about to go through the exit planning process, were going through it at the present time, or had just completed it. He stated that only one business owner identified the right successor the first time. The message: leave extra time for setbacks and surprises, because they will almost certainly occur.

After all, selling one’s business is usually the biggest financial event of an owner’s life. Therefore, it is only prudent for the business owner to properly plan for their own departure.

The success or failure to plan properly could have a major impact on the business owner’s lifestyle in retirement.

If you are an ExitMap Affiliate, let me know about published articles. I’m happy to give them a circulation boost.

Posted in Exit Planning | Tagged , , , , , , | 2 Comments

2 Responses to Exit Planner Spotlight

  1. Steve Vesey says:

    Another spot on article . The numbers supporting the supply and demand issues are staggering especially when combined with the fact that nearly all of these business owners have failed to ffund their retirement at an adequate level makes this message all the more compelling

  2. John McAllister says:

    Baby Boomer Business Owners…keep on keeping on…at your own risk! Just returned from The National Land Conference, sponsored by The REALTORS Land Institute in Nashville, TN. Next recession…May, 2019. Each day that goes by means fewer Baby Boomer Business buyers for your business…help us, help you…call or email so we can begin an assessment of your situation.

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Business Buyers and Disintermediation

In the last post, we discussed the reluctance of many prospective business buyers to deal with the regulatory burden of being an employer or service provider. You may be among the lucky few whose profession doesn’t require licensing. Even better, you may have qualified employees who are able to run the business without you.

There are other issues that concern younger buyers, however. One of these is the threat of disintermediation. That’s a trendy word for what we used to call “bypassing the middle man,” but it applies to many businesses that are being made obsolete by technology.

Disintermediated Businesses

How many business people still rent cars to attend a couple of meetings in a city? With Lyft and Uber, it is frequently easier to call a ride than leave a car in the (expensive) hotel parking for 90% of a visit. I’d be very skeptical of buying a car rental business today.

What happens when (not if) autonomous vehicles become part of daily life? Long-haul trucking will move to non-peak traffic hours, reducing the need for drivers, training schools, highway expansion, truck stops, and perhaps the number of trucks themselves.

Service businesses where the middleman lends expertise (easily duplicated by Internet research) or access to vendors are feeling the crunch already. The warning bell is sounding for mortgage companies, real estate agents, insurance and benefit brokers, employment agencies, printers, publishers, and travel agents.

These businesses won’t go away, but there will be fewer of them, and their margins are eroding.

The rise of robotics and artificial intelligence threatens even the most skilled professions. Legal databases, automated interpretation of medical imaging and free online tax filing are a few examples.

This quote is from a  February 21 essay by Rob Kaplan, President of the Federal Reserve Bank of Dallas.

As I have been discussing for the past two years, technology-enabled disruption means workers increasingly being replaced by technology. It also means that existing business models are being supplanted by new models, often technology-enabled, for more efficiently selling or distributing goods and services. In addition, consumers are increasingly being able to use technology to shop for goods and services at lower prices with greater convenience—having the impact of reducing the pricing power of businesses which has, in turn, caused them to further intensify their focus on creating greater operational efficiencies. These trends appear to be accelerating.

The Impact on Sellers

The overview of the business seller’s marketplace is straightforward. As I’ve been proselytizing for over a decade in my “Boomer Bust” presentations and books, selling a business will be more challenging, but that doesn’t mean any particular business is unsellable.

As with any other competition, the response is to create differentiation from the rest of the pack. There are a few key factors that top the list of appealing differentiators for business buyers.

  1. Build a business that can run without you. The more you work in your business, the less it is worth.
  2. Train effective management. Employees who understand how to run a profitable business are highly appealing to any prospective buyer. In addition, they can provide you with an alternative to a third-party sale.
  3. Upgrade the value-added component of your offering. If the only benefit you offer to a customer is time and place utility, you are probably toast.

There is another factor that may sound counterintuitive. Design your business so that it requires more expensive employees. If low wage workers are the backbone of what you do, you risk losing the technology arms race with larger competitors. I’ll expand on this in my next post.

The population of business buyers is younger, more technologically savvy, and less inclined to long hours than the generation that is selling. Winning in a competitive marketplace demands that you offer what business buyers want.

 

Posted in Building Value, Entrepreneurship, Exit Planning | Tagged , , , , , , , , , , , , , , , | 2 Comments

2 Responses to Business Buyers and Disintermediation

  1. Paul Cronin says:

    Great post John. As we say at Successful Transition Planning Institute, you have to know your goals and address your fears to have a great business transition. Fears about disintermediation are not often raised by the owners, but a wise advisor must raise them. Otherwise the owner’s goals may simply be fantasy. For those owners whose business is likely being dis-intermediated, and cannot offer differentiation (or it is too late to do so without significant, risky investment), the owner can still set goals for winding down the business and protecting personal assets, as well as creating a meaningful life.

  2. MuslimMummy says:

    Scott: I ran into the same problem with ebay buyers trying to hold our feedback rating hostage by getting an undeserved partial refund. Our “full, unconditional refund rather than a “partial refund policy was set in stone during a rare 78 collection ebay sale. Although the collection was mint, untouched store stock and sold items were packed in expensive Uline 78 mailers several buyers claimed the 78″s arrived warped and wanted a partial refund. Statistically the number of “warped in shipping seemed way too high but we offered a full refund instead of a partial one to all buyers. Not one of them replied or sent their purchases back which made us assume they were all lying in order to get a refund. As Seinfeld said, “People, they”re the worst!.

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