Selling a business no longer reliable as a retirement plan

31 October 2018 by National Bank

As increasing numbers of small business owners eye retirement after years of economic struggles, lack of investor interest can be a rude awakening.

According to a Globe and Mail report, the growing number of small business owners who face the same predicament reflects not only a global phenomenon, but a form of economic crisis never before seen.

The struggles facing small business owners who’ve been dreaming of cashing in on a comfortable retirement are characterized by disheartening statistics, including:

  • Half of Canadian small-business owners plan to retire by 2019
  • 40% of those have revised their original retirement date and plan to stay in business longer due to lost equity in the market downturn
  • The wave of boomer entrepreneurs planning to retire in the next 10 years will mean more businesses are for sale at the same time
  • Gen X promises a smaller percentage of potential business owners moving forward, with many of them opting for tech ventures, rather than nuts and bolts
  • One third of U.S. small business owners have no pension or retirement savings
  • Pre-recession, private businesses would sell for more than five times their cash flow, but that number has fallen to three to four times

Marketability appears to be a particular issue for companies valued at less than $30 million, with retail and restaurants being the most hard hit and hardest to sell.

For those still hopeful of retiring on the proceeds of their life’s work, here are a few steps that can greatly enhance your chances:

  • Improve your accounts receivable to speed up cash flow
  • Pay down bank loans and get rid of obsolete equipment
  • Reconfigure the business so that it can run smoothly without you
  • As much as 10 years before selling, sell 30% of the business to private equity

With seemingly fewer options available, some small business owners can take solace in the fact that a new option emerged in March in the form of Halifax-based SeaFort Capital Inc.

While few large private equity firms take an interest in small businesses these days, SeaFort plans to buy controlling interests in small businesses that earn between $2 and $10 million and whose owners are nearing retirement age.

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