Why the “Silver Tsunami” Might NOT Happen in SMB…

Why the “Silver Tsunami” might NOT happen in SMB (according to one broker…)

Earlier this week, Contrarian Community Facilitator (and biz broker) Clint Fiore wrote about why the “Silver Tsunami of Boomers” doesn’t mean biz-buying will come easy.

And let us just tell you this: the man’s post brought people out of the WOODWORK.

Here’s the main idea:

“I came into business brokerage 10 years ago with a promise of a ‘Silver Tsunami,’” says Clint, “a demographic wave of Baby Boomer business owners with no succession plan and trillions of dollars of small businesses needing to sell in the next 10-20 years.”

In theory, he says, we should be seeing a huge supply of businesses and a shift to a record-large buyer’s market.

But we’re not. From his perspective, it has yet to be the case.

Clint’s 7 theories on why the SMB “Silver Tsunami” hasn’t happened…

1) The “Buyer Tsunami” is bigger than the Silver Tsunami

• SMBAs: Business schools are increasingly teaching about ETA (Entrepreneurship through Acquisition)
• Contrarian factor: Folks like Codie “are turning people onto entrepreneurship at a staggering rate. It’s becoming mainstream-cool to leave the corporate 9-5 and go buy or start an SMB,” he says.
• Current owners: Per Clint, more and more are adding onto their current businesses as a way to grow.

“Combined — many more buyers entering the space than retiring Boomers can satisfy the demand for.”

2) COVID did a number on Sellers

• Many businesses took a hit during the Pandemic, either closing permanently or struggling to adjust to a new world with new valuation expectations.
  
• “So they’re closing or just limping along mortally wounded unable to come to grips with selling for a much lower value,” Clint explains.

3) Boomers suck at preparing their books

• To have a sellable business, you need to make it sellable. That means being able to clearly and easily prove your profits.
• In Clint’s experience, old-school owners have “decades-old ingrained habits of keeping lackluster records,” which make deals a whole lot less bankable.
• “Today’s Buyers want to borrow and leverage SBA loans and if the business can’t easily pass underwriting with its historical tax returns, they’re VERY hard to sell,” he says.

4) Commercial real estate appreciation

No, not “appreciation,” as in you’re fond of it and there should be a CRE Appreciation Day.

He’s talking about appreciation, as in prices are through the roof.

• Boomers who are looking to sell real estate tied to their business know they’re sitting on gold mines. Unfortunately, many buyers can’t afford to buy gold mines, and the businesses they’re buying aren’t lucrative enough to solve the real estate equation.
• Clint says some sellers may close or liquidate their businesses to get top dollar for their real estate, but “many remain in purgatory unwilling to close their business they love and unwilling to accept offers for the RE that the business can sustainably support.”

5) The Boomer psychological barrier

• “This generation highly identifies with their businesses. They feel like they are the business, and selling feels like they’re losing their meaning, their worth, and even reason to live.”
• The result? They hold on too long, often to a point where the business is no longer sellable, according to Clint.

6) Many biz’s may not be sellable in the first place…

• A lot of the sub $1M revenue business are built around an owner’s skills and lifestyle. They leave? The business may go poof.
• For buyers, many businesses may not make enough profit to service debt, hire an operator, and support the buyer on top of that — which is why deep due diligence is crucial.

7) Owners often sell to owners

• There’s a lot of “insider trading” in biz buying, in the sense that owners in certain industries often quietly sell to friendly competition rather than go through the whole process of a brokered sale to an unknown buyer.
• “If you’re a Buyer frustrated with market dynamics seemingly making buying a business an uphill battle, hopefully this helps you understand why,” says Clint.
• “There is hope though! You can still win as a Buyer but it’s not easy and you need to learn the game and get good at it!”

“This is the realest post I’ve read about SMB acquisition in a while…”

Our community members had some thoughts here…

Lance: “This makes perfect sense. I see this mentality also in some Gen X. Most of my friends and family who own small businesses are just job owners even if they have a few employees. The CT community has really opened my eyes to what a business is truly worth.”

Sonja: “What a fantastic post. Gems! Point #6 is really the one biggest clarity point for me after 8 months of searching. Sooooo many businesses for sale are really not businesses as you say — just jobs.”

Evelyne: “This is the realest post I’ve read about SMB acquisition in a while. This is exactly what I’ve been running into, day in, day out. I’ve been overwhelmed by the amount of businesses out there that are just not worth buying, 100+ reviewed and still counting…”

And one more thing…

Inside our community, Clint added that he still firmly believes there’s “still a lot out there.”