As the Baby Boomers reach retirement age, you can expect to see more ownership transitions for small businesses. According to the latest data from Barlow Research, 57 percent of small business owners are currently 60 years or older, a dramatic increase from 38 percent in 2008. 

Barlow data also shows that nearly half (48 percent) of small business owners over the age of 60 are planning to transition their business within the next five years.

This impending increase in ownership transitions creates enormous opportunity for savvy bankers to strengthen relationships with these small businesses and to uncover future wealth management needs of their owners who are on the cusp of retirement and loan needs for those purchasing their businesses.

Is the price right?

There may be a good number of questions that these soon-to-be retirees have about their business that you as their banker can help answer. Initiating conversations about such topics can help bankers establish themselves as trusted advisors while also identifying any unmet financial needs of the owner. A few of the common questions older business owners may have include:

  • How to assess the value of the business
  • Potential exit strategies
  • Employee Stock Ownership Plans (ESOPs)
  • Family ownership transfer

Industry-specific valuation data

A review of business valuation data located as a chapter in Vertical IQ is an easy way to initiate conversations about how to value the business. Vertical IQ’s business valuation data is supplied by Pratt’s Stats, an online database with the most complete financial details on over 27,000 sale transactions for private companies. While these are actual transactions, it is important that your customers consult with a qualified business appraiser, accountant, or mergers and acquisitions expert prior to selling their business.

The Business Valuation chapter for each Industry Profile contains graphs that show the distribution of sale transactions for various values of each of the following metrics:

  • Selling price to sales
  • Selling price to gross profits
  • Selling price to EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
  • Selling price to EBIT (Earnings Before Interest and Taxes)

Starting the conversation

Ownership transitions for small businesses are going to continue to increase as owners look to retire after years of hard work. The process used to establish the value of those businesses takes numerous factors into account—everything from management experience and scalability to market competition and conditions—and that is why having a qualified business appraiser involved is vital. But when you meet with a business owner who may be looking to sell in the near-future, the data found on the Vertical IQ profile is a great baseline for determining that dollar figure.

Print out the Business Valuation chapter and share it, or incorporate the graphs and data into your presentation deck; either way, it’s a fantastic conversation starter for you to use to uncover a business owner’s potential wealth management needs down the road!