Baby Boomers And The Flood Of Small Business Sales That Never Happened

Do you remember all those scary articles claiming that baby boomers were all going to sell their businesses at the same time? ………….And that would cause a glut of businesses for sale …………And that would cause the value of your business to plummet?

Turns out it never happened.


In this article in the Wall Street Journal entitled The Missing Boom In Small-Business Sales the author explains that – surprise, surprise – people like running their businesses. Even when they are 65 years old.

As one business owner quoted in the article said, ““The world has changed and lifespans have changed. Baby boomers are so not dead yet. Do we really think we will fade off into the sunset? No.”

Of course the media always needs a story. And the fear and drama that can be created by the idea that hard working business owners are going to lose all the value they’ve built into their businesses – well, that sounds pretty scary.

And if all 10 million boomers who own businesses put those business on the market at the same time …. well, that would cause a glut. That would be scary. I have written before about the ridiculous over-use of the Tsunami as a metaphor for baby boomers selling their businesses

But as we have pointed out before:

  • The baby boom generation spans 18 years. The youngest boomers are in a different phase of life than the oldest. So there is no reason to group them all together.  
  • Retirement is a phase of life that goes on for many years. But selling a business is an event. You can sell your business at any time. And as the Journal article points out – as if it were some great revelation – turning 65  doesn’t mean anything to an owner who is enjoying their life and work.
  • The biggest block of business buyers happen to be the younger boomers. The International Business Broker Association reports that people between 45 and 54 are the most active buyers of small businesses.
  • The increase in business sales from 2012-2014 took place because the economy improved. Owners who had put things on hold starting in 2009 finally had the conditions that were right for selling. Here in 2015, sales are down slightly from last year. One reason is that for several years people who wanted to sell waited. They waited until the economy improved. So sales naturally picked up when the economy did improve. It is the economy more than anything else that dictates the pace of small business sales.

Incredibly, after the author acknowledges that the predicted “flood” of businesses sales never materialized, she goes on to reference analysts who, “expect activity to pick up over the next few years as more boomers hit their 60’s.”


Most baby boomers are already past 60. If the oldest boomers turning 65 didn’t create a flood of selling, why would the youngest boomers turning 60 dramatically change things?

It won’t. Ignore the hype. Aging boomers will not cause a glut in the market. And they will not ruin the value you have built into your business.


Putting Baby Boomer Business Sales In Perspective

For a more enlightening article on the baby boom, you should read this post published by The New York Times in August.

Here the key quote from the article:

“For those who decide to put their business on the market, the pool of potential buyers is the largest it has been in years.”

There are several reasons for this. First, the population has been growing rapidly in the last few decades. It is up over 55,000 million in just the last 20 years.

The total number of people in the prime business-buying years of 30-55 has never been bigger

And it is not just the traditional white male demographic that makes up that population of potential business-buyers. Many more women and minorities are now part of the business buying population. According to a study From BizBuySell, just 8% of business buyers over the age of 65 describe themselves as black, Asian or Hispanic. But 30% of buyers aged 30-49 put themselves into one of those categories.

And women make up 20% of buyers under the age of 49. But just 9% of those over 65.

Another new factor swelling the size of the buyer pool is corporate downsizing. As one broker in the story is quoted, ““I have a lot of guys who are 40 to 50 years old and need to buy a job,” he said. “They’ve been downsized, or transferred out of the area, and they decide to be their own boss.”

In summary: the population of Americans in the prime buying years outnumber the boomers. The rate at which women and minorities are now participating as buyers is unprecedented. And the option to stay in, or return to, a corporate job has never been less of an option. So whenever you decide to sell there will be a sizable pool of good prospects out there. There is no reason to fear a flood, tidal wave, avalanche or Tsunami of boomers all selling at the same time.

10 Things You Need To Know Today If You Want To Sell Your Business Tomorrow

The fact that the baby boom generation is not going to kill the value of your business is just one of the 10 Things you will learn in 10 Things You Need To Know Today If You Want To Sell Your Business Tomorrow. Some of the other truths or Things we cover are: why most owners fail to sell their business and why the idea that “business valuation is more art than science” is so wrong. Click Here to learn more and to download your copy of the book.

Selling A Liquor Store – Here Is What Your Buyer Needs To Know

When it comes to selling a liquor store I have some good news. Liquor store businesses are very popular among buyers.

The bad news is that many potential buyers have unrealistic ideas about how a liquor store business works.

So when you advertise you store for sale you should get more replies than most other business owners. But you are going to need a lot of inquiries from buyers. Because most of them will not be serious enough or financially qualified to buy your store.

The belief among many buyers is that liquor stores are simple to run.

“Everybody loves booze, right? How hard can it be to run this business? Stock the shelves, open the doors and wait for the customers to come rolling in.”

Other misconceptions include the belief that liquor stores are cash cows.  And that they can thrive with an absentee owner.

If you are going to go the For Sale By Owner route you are the one who will have to educate the buyers about how a liquor store business works.

And you will have to make judgments about which prospects are legit and which ones are going to waste your time.

So let’s look at the major issues surrounding the sale of your store. And let’s talk about the ways a qualified prospect will deal with these issues.


The Key Aspects Of Selling A Liquor Store


Licenses – If you live in a state with a limit on the number of licenses issued, be prepared for the shock and awe some buyers are going to experience when they find out the cost of buying your license.

They won’t believe you when you quote a price in the 6-figures.

So be it. Don’t waste your time with arguments you can’t win.

Put together a list of all the state and local authorities that regulate liquor stores and liquor licenses. Let the buyer confirm the reality for themselves. It is not your job to do their research for them.

But be aware that confusion and misunderstandings are common. Some of it is understandable. The costs vary incredibly from state to state. And in some states the political process hopelessly confuses things

But people who are completely shocked by the cost of the license are not prospects. Real prospects will have done their homework and will not be surprised by your asking price.

They may try to negotiate a lower price. That’s fine. That is what happens when businesses are bought and sold – both sides negotiate the best deal they can.

But  don’t confuse the legitimate business person who makes a legitimate counter-offer with the angry responses you will get from the unqualified prospects.

Product Knowledge – The more unique and specialized your product mix the higher the margins. Great. High margins add a lot of value to your business.

But that is only of value to the buyer if they can quickly learn all the necessary product knowledge. The more specialized/unique your product mix, the more the buyer will have to learn.

This is a case where the buyer may be better off if he or she is a newbie. Buyers who consider themselves a wine expert or a scotch connoisseur may try to stock the shelves with what they like.  

Your success to this point has been supplying the neighborhood with what the neighborhood wants. And your buyer will have to keep doing that. A prospect who is curious about your clientele and the way you manage your inventory and product mix is a good prospect.

But a prospect who can’t wait to change the inventory to suit their tastes is a disaster waiting to happen. If you are going to finance a portion of the sales price you can’t afford to sell to a hobbyist with no business sense.

Absentee Owner – The perception among many prospects is that a liquor store is tailor-made for absentee owners.

Of course, this makes no sense.

It is a cash business with an inventory that can attract all the wrong people. For all the wrong reasons. And often attracts people who are the wrong age.

But the biggest red flag is the prospect who wants to buy the business you have managed in person and turn it into an absentee-owner store.

Absentee owner stores requires that a very mature, professional manager is on the payroll. It also means that the hourly employees have to be of a higher caliber. Which means higher wages.

In a future post we will go into specifics about how to value/price your liquor store. The main thing to understand is that when the business is owner-operated the owner’s salary is considered profit (specifically it is called Owner’s Benefit or Seller’s Discretionary Earnings).

With an absentee-owner business though the salary paid to the manager is overhead.

It is just common sense that if the owner comes in and works in the business every day the business should pay him more money than if he hires a manager to run the show.

But in the liquor store industry we have this absentee-owner myth. Some buyers actually expect to make owner-operator profits while running the business with the absentee-owner method.

It is a silly notion. Any prospect who has these unrealistic expectations should be cut loose right away. They will never buy your business.

Distributors – The other big issue with selling a liquor store is that buyers underestimate the power of the distributors.

Buyers who think they can negotiate with distributors as if it were a hardware store are not qualified to buy.

A legitimate buyer should be familiar with the 3-Tier System.

Again this is an area where misunderstandings are common. A lot of people are familiar with the exceptions for brew pubs and wineries. But they think these exceptions apply across the board.

Whatever the rules are in your state, a high quality buyer should already have a good understanding of them before contacting you.

At the very least they should be willing to learn what they don’t already know.

How a buyer deals with the reality of these issues is your best indication of their readiness to buy.

If you get any resistance at all on any of these issues you know you are dealing with a bad prospect.

And you can’t turn a bad prospect into a good one. All you can do is move on to the next one.

Want more information on selling your liquor store?
Visit The Selling A Business Resource Page
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Selling Your Hair Salon – Best Business Valuation Methods

There are two business valuation methods that can be used when selling your hair salon. Fortunately is it easy for you to determine which one you should use.

If the salon is not profitable and you just want to liquidate your assets you need to use the asset based valuation method.

But for a successful salon you want to base your asking price on the earnings. Specifically you should use the multiple of earnings method.

We are going to dive into this method in detail below. And we will explain why it is the best one to use in the hair salon industry.

But first, a word about “Rules Of Thumb”. And why you should not use them.

In the salon industry the “rule Of Thumb” approach to valuation is popular. A rule of thumb is just a short cut. A simple, quick calculation that is supposed to give you a “ballpark” price for your business.

Here are just a few rules-of-thumb I have come across over the years when for valuing a salon:

  • 4 times monthly gross sales PLUS inventory.
  • 25-35% of annual gross revenues PLUS fixtures, equipment & inventory.
  • 10-25% of annual adjusted earnings PLUS $2000 per station.

If  apply all 3 of these equations to your business you may come up with 3  vastly different values for your salon. So what is the point?

The thing to realize is that assigning a random value per station or taking a random percentage of revenue means nothing to the buyer.

The buyer is interested in your business for the money it can provide her.

So earnings must be the basis for your salon valuation.

It is the most meaningful thing in the buyer’s mind. So always begin with the earnings and forget the over simplified rules of thumb.

But this raises the question: How, exactly, do you define earnings?

Do we use gross profits? Cash flow? Do we use what is on the tax returns?

And do we use historical, proven profits or should we project profits forward for the next few years and use that figure?

The answer is that you definitely want to use recent, historical earnings. And the type or definition of earnings to use is what is called “Owner’s Benefit”(which we will define shortly).

he reason to use historical earnings is that the buyer will operate the business much like you have. At least in the beginning.

So if the buyer wants to estimate what the business will provide in the first few years, the most accurate place to look is the last few years.


The Best Definition Of Earnings To Use When Selling Your Hair Salon


Earlier we said that “owner’s benefit is the specific definition of “profits” that you should use.

The equation for coming up with your Owner’s Benefit is:

Annual Pretax Profit + Owner’s Salary + Owner’s Perks/Benefits + Interest + Depreciation

This total will tell the buyer how much cash the business produces for it’s owner on an annual basis. (NOTE: Obviously you are free to price your business however you please. But th“owner’s benefit” will always be the thing that motivates the buyer to buy. When they investigate your business this number will be the one thing they are looking for above all others. They may not use the terms “owner’s benefit” or “seller’s discretionary income”. Buyers will always calculate the price they offer you for your business based on owner’s benefit.)

You can use an average of your last 3 years Owner’s Benefit.

You may be tempted to use just the profit from the most recent year instead of the last three. But I suggest you use three years because that creates more credibility with the buyer.

Especially if your most recent year has been much better than any other year. The buyer may regard that one year as a fluke. Or they may suspect you have manipulated the numbers.

If your profits have been trending up for each of the last three years you should consider weighting the more recent years more heavily. For instance, instead of adding up your profits from the last 3 years and dividing by three, you can take 70% of your most recent year’s profits plus 20% of the prior year plus 10% of the year before that.

So there you have the “earnings” part of your “Multiple Of Earnings” valuation.

Now you are ready to consider the multiple portion of your valuation. In our last post we discussed in detail the factors that can raise or lower the multiple in you hair salon valuation.

For a more general discussion of valuation multiples you can read this article.

Want more information on selling your hair salon?
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Buying And Selling A Hair Salon: Business Valuation For The Beauty Business

When buying and selling a hair salon the valuation can be the trickiest part.

How do you know what is a fair price when buying or selling a salon/spa?

Fortunately we have recent reliable data on what salons across the country have sold for. Using this data as a starting point it becomes much easier to determine the real-world value of your salon. Whether you are the buyer or seller.

For 2014 reported 227 completed sales of hair and beauty salons. While this number is just a fraction of all the sales that took place it is the biggest survey of recent salon sales. So it is a good starting place.

Data For 227 Completed
Hair Salon Sales In 2014
Median Selling Price$94,080
Median Cash Flow$64,311
Median Multiple Of Cash Flow1.75
Median Revenue$208,698
Median Multiple Of Revenue0.45

We can see that salons most typically sell for around 1.75 times their annual cash flow.

Of course these are just the median sales prices and multiples. You may do much better. Or maybe not.  

It all depends of a few key factors. Let’s look at each of the most important factors.


5 Factors That Impact Your Hair Salon Valuation


1.) Multiple Streams Of Profits– The most profitable salons make money on more than just hair-styling. Nails, waxing and massage are the most common extra services.

And add to that products such as shampoos and conditioners – which usually bring in the highest margins.

Of course just offering these services/products is not enough. If an owner dedicates the space, personnel and marketing resources to these additional services they have to be profitable. They can’t just increase revenue.

That is why this section is labelled “Multiple Streams Of Profits” and not “Multiple Streams Of Revenue”.

As a salon owner who is looking to sell, you will be better off dropping any extra services that have not been profitable. Better to offer a limited number of services that all contribute to the bottom line than to have a long list of offerings that just eat up space and energy.

And as a buyer you want to look for efficiency not size. A salon that offers a few services that are all profitable will be much easier to manage than one with a laundry list of services that don’t generate profits.

You should pay for the bottom line profits of the salon and not the top line revenues.

2.) Quality Of Staff – The most attractive salons will have a crew of stylists who are willing to stay after the sale………… and an owner who isn’t.

Best case scenario is that the customers are coming in to see the stylists and not the owner. This way the business maintains its value after the sale. If current revenue depends on people coming in to be served by the owner/founder that will be a red flag to any buyer.

If you are not just the owner but also the salon’s star stylist, you may be better off delaying the sale until you can develop a team of stylists that will stay with the business after the sale.

In the sale of any small business the key question for the buyer is always:

Do I have a reasonable expectation that I will have the same level of success after the sale that the owner has enjoyed up until now?

Not a guarantee – just a reasonable expectation that things will stay the same. If most customers are doing business with stylists that won’t be there after the sale it is not reasonable to expect profits to stay the same. And that will impact the price at which the salon can be sold.

3.) Competition – The salon business has a relatively low barrier to entry.

Compared to other businesses it can be cheaper and quicker to open a new salon. So the amount competition is a big deal for both a salon owner and a salon buyer.

This is why the first two factors – multiple sources of profits and a high quality staff – are so important. It is very hard to duplicate these two assets. In a sea of competition they can make you stand out.

And not just to clients but to potential buyers. Anyone interested in buying your salon will also look at the other salons in your area that are for sale.

So there are two types of competition. The salon must compete on a daily basis for customers. And once it is put  up for sale it must compete with other salons for a buyer.

You can’t do anything about the number of other salons that are for sale in your area. But it is something you need to be aware of.

4.) Conditions Of FacilityMost salons operate in rented space. This can cause a problem if the landlord only cares about collecting the rent. If upkeep has be neglected for any length of time it will affect the valuation.

Appearance is a big deal to buyers. It is an emotional factor. No one wants to invest their life savings unless they can take pride in the appearance of the building.

Buyers will always add the perceived costs of new tiles on the floor and new paint on the walls into any valuation they place on the business.

If  your landlord is unwilling to invest in the upkeep you may have to take matters into your own hands.

You are better off fixing, cleaning and/or replacing what you can. What you actually spend on these improvements will be less than what the buyer imagines they are going to have to spend to make those same upgrades.

5.) Lease – In addition to the monthly rent amount, there are two significant features in any lease:

1.) Assignment – Can your lease be taken over by the buyer without your landlord’s approval?
2.) Length – How much time is left on the lease and does the renter have the option to extend it.

Leases are usually written with a “no-assignment” clause. This means the buyer can not take over the lease without the landlord’s consent.

Unfortunately, some greedy landlords will see this as an opportunity to dramatically increase the rent – often to the point that it kills a sale.

Before you put your business on the market you should read your lease to see just what the terms and limitations are concerning assignment.

If you have only a year or two remaining on your lease, the buyer will be forced to make a purchase-offer contingent upon her ability to negotiate a long term lease with the landlord.

At that point, the fate of your sale will be out of your control and rest in the hands of the landlord.

Even if you have a few years remaining on your lease you should consider negotiating a new lease now. You don’t have to tell the landlord that you are selling, just that you’d like to lock in a good lease for the long term.

Click Here To Find Hair Salons For Sale By Owner

…..WSell Your Hair Salon w/ We Pre-Screen Buyers For You…. Guaranteed Confidentiality….. Never Pay A Broker’s Commission  No Long Term Commitments …. $49.95 Per Month … For-Sale-By-Owners Only –  No Broker Allowed      Click Here For Details