4 ms·

I heard in the West its similar, lots of baby boomers want to retire with small businesses that no one wants to take over.

by rr888 4y ago

tluyben2 4y ago
I looked at a few and even took over 1 from someone retiring; the amount they want to sell for here in the west is often too high for all the risk involved in taking something over you have less experience with than the retiring founder. Valuations are interesting but for many small businesses, it is not very clear if it’s worthwhile unless you have extensive experience in that market/area or yourself a company that benefits from taking over the other company.
otoburb 4y ago
>>I heard in the West its similar, lots of baby boomers want to retire with small businesses that no one wants to take over. Yes[1], and this becomes even more complicated when these baby boomer small business owners are/were planning on the sale of their business as a way to (partially) fund their retirement, whether in future cash flows as a residual equity owner or lump-sum with (too) high valuations. [1] https://www.forbes.com/sites/markhall/2022/01/25/unsexy-but-thriving-businesses-the-hidden-opportunity-gifted-to-us-by-baby-boomers/ https://www.forbes.com/sites/markhall/2022/01/25/unsexy-but-...
raincom 4y ago
A small business owner will say he makes $400K profit a year, but wants to sell it for $2M (5 times $400K). What he doesn't tell you is that $400K includes his salary. As an owner, one needs to spend 60 hrs a week to run such a business. Here, $400k is just the salary for oneself to run that business. No profit left. The people who have means to buy such a business (like the bay area tech people), don't want to buy such businesses, because there is no upside. The people who want to run such a business (say, a security guard working for Pinkerton), don't have the means to buy such a business.
- Danieru 4y ago
  You've hit the nail on the head. Small business valuation is hard and surprising. Almost by definition a small business has not been systematized and abstracted. The owner is vital to the operations. This is in strong contrast with medium or large businesses where a professional management layer exists. Thus allowing the owner, even if nominally the CEO, to relax and ignore day to day operations. Thus small business are best through of as a job, not an asset.
- ZephyrBlu 4y ago
  5x profit for a small business seems a bit high unless it was really stable.
  - raincom 4y ago
    I agree with you. Retiring owners of small businesses seems to want 5 times the profit, even though he appears to be listing for 3 times the profit. Once you go through the books properly, that's what happens.
xenadu02 4y ago
Before we bought a house (in SF) we rented. My landlord was born in SF and owned his own home in Daly City. He inherited the house from his mom for free with a 200k tax base on a 1.1m home. He owned a food truck that was grandfathered by SF - sometime in the 70s he parked on city property (the government area) and ended up squatting there so long the city let him stay. His closest competitors were two blocks away. You'd think that business would have premium value - no one can get a permit or permission to setup a similar business in that area and anyone working in the area had to walk several blocks to find competition. He parked the truck in his mom's garage in SF until we rented the house (free enclosed parking, with charging, water tap and drainage!) Instead he retired and shut it down because no one would make enough money operating the business to want to take it over. Driving your food truck 2 hours every day was just not enticing and most people wouldn't be able to find a safe place to park the truck with electrical and water access. The only people capable of operating that business were old people who bought their property cheap in the 60s/70s or children who inherited property for free. It isn't always that no one wants the business... sometimes the personal economics make it impractical.
shusaku 4y ago
It’s because we invented money, basically. If you want your kids to have a head start you buy then a college education, a down payment on a house, etc. When the world was less liquid it made sense that the only value you could give your kid was an apprenticeship.

I heard in the West its similar, lots of baby boomers want to retire with small businesses that no one wants to take over.

by rr888 4y ago

I heard in the West its similar, lots of baby boomers want to retire with small businesses that no one wants to take over.

tluyben2 4y ago

I looked at a few and even took over 1 from someone retiring; the amount they want to sell for here in the west is often too high for all the risk involved in taking something over you have less experience with than the retiring founder. Valuations are interesting but for many small businesses, it is not very clear if it’s worthwhile unless you have extensive experience in that market/area or yourself a company that benefits from taking over the other company.

otoburb 4y ago

>>I heard in the West its similar, lots of baby boomers want to retire with small businesses that no one wants to take over. Yes[1], and this becomes even more complicated when these baby boomer small business owners are/were planning on the sale of their business as a way to (partially) fund their retirement, whether in future cash flows as a residual equity owner or lump-sum with (too) high valuations. [1] https://www.forbes.com/sites/markhall/2022/01/25/unsexy-but-thriving-businesses-the-hidden-opportunity-gifted-to-us-by-baby-boomers/ https://www.forbes.com/sites/markhall/2022/01/25/unsexy-but-...

raincom 4y ago

A small business owner will say he makes $400K profit a year, but wants to sell it for $2M (5 times $400K). What he doesn't tell you is that $400K includes his salary. As an owner, one needs to spend 60 hrs a week to run such a business. Here, $400k is just the salary for oneself to run that business. No profit left. The people who have means to buy such a business (like the bay area tech people), don't want to buy such businesses, because there is no upside. The people who want to run such a business (say, a security guard working for Pinkerton), don't have the means to buy such a business.

Danieru 4y ago
You've hit the nail on the head. Small business valuation is hard and surprising. Almost by definition a small business has not been systematized and abstracted. The owner is vital to the operations. This is in strong contrast with medium or large businesses where a professional management layer exists. Thus allowing the owner, even if nominally the CEO, to relax and ignore day to day operations. Thus small business are best through of as a job, not an asset.
ZephyrBlu 4y ago
5x profit for a small business seems a bit high unless it was really stable.
- raincom 4y ago
  I agree with you. Retiring owners of small businesses seems to want 5 times the profit, even though he appears to be listing for 3 times the profit. Once you go through the books properly, that's what happens.

xenadu02 4y ago

Before we bought a house (in SF) we rented. My landlord was born in SF and owned his own home in Daly City. He inherited the house from his mom for free with a 200k tax base on a 1.1m home. He owned a food truck that was grandfathered by SF - sometime in the 70s he parked on city property (the government area) and ended up squatting there so long the city let him stay. His closest competitors were two blocks away. You'd think that business would have premium value - no one can get a permit or permission to setup a similar business in that area and anyone working in the area had to walk several blocks to find competition. He parked the truck in his mom's garage in SF until we rented the house (free enclosed parking, with charging, water tap and drainage!) Instead he retired and shut it down because no one would make enough money operating the business to want to take it over. Driving your food truck 2 hours every day was just not enticing and most people wouldn't be able to find a safe place to park the truck with electrical and water access. The only people capable of operating that business were old people who bought their property cheap in the 60s/70s or children who inherited property for free. It isn't always that no one wants the business... sometimes the personal economics make it impractical.

shusaku 4y ago

It’s because we invented money, basically. If you want your kids to have a head start you buy then a college education, a down payment on a house, etc. When the world was less liquid it made sense that the only value you could give your kid was an apprenticeship.