Investment Class

Exploring the Viability of Private Small Business Investment as a Distinct Asset Class for Accredited Investors.

In the realm of investment considerations, the prospects of engaging in direct investments in Private Small Businesses warrant thoughtful examination. Indisputably, the assertion that this is a promising avenue finds support in various levels.

As seasoned M&A Advisors, we have the privilege of overseeing a multitude of small-scale transactions that underscore sustained profitability and potential. These opportunities manifest as part of a transition process, wherein aging proprietors seek to divest their ventures. The identification of enterprises that are efficiently run by a management team, thereby allowing owners/investors to assume an observational role from a distance.

The underpinning significance of small businesses in bolstering the United States' economic framework cannot be overstated. Worth noting is the veritable windfall generated by entities such as Private Equity, Banks, Investment Banks, and Family Offices, facilitated through the strategic utilization of external capital sources, colloquially referred to as "Other People's Money (OPM)."

Amid this landscape, the trajectory of investing directly in small businesses unveils a burgeoning prospect, be it at a local, regional, or national level. The dynamics are further underscored by the ongoing transition of numerous small business proprietors towards fresh ownership and adept management teams.

The intricacies of this process, while not groundbreaking, do present an opportunity for investors to engage in collaborative partnerships with extant management entities, or alternatively, with teams that are poised to contribute meaningfully to the enterprise. This symbiotic endeavor is inherently rooted in shared commitment and a stakeholder approach, ultimately driving value generation.

In summation, the exploration of direct investment avenues within the realm of Private Small Businesses stands as an opportunity ripe with promise. It beckons astute investors to ascertain the feasibility and potential value within this distinct asset class, of economic growth and entrepreneurial vitality.

Why Investing in Private Businesses is becoming a New Asset Class!

Did you know that 10,000 Baby Boomer business owners retire each day? With 77 million of them in the US, this generation is set to leave an enormous mark on our economy. Over the next two decades, an estimated $10 trillion of assets will be sold or passed on. This will have a massive impact on our business landscape, and savvy investors should keep a close eye out for new opportunities. Stay ahead of the game by monitoring recent Baby Boomer business owner statistics.

Baby Boomer Business Owner Statistics

·??????? There are 12 million small businesses in the US, according to estimates.

·??????? Baby boomer businesses employ over 25 million people.

·??????? On average, 350K baby boomers sell their business per year.?

·??????? About 40% of the nation’s privately held small businesses and franchises are owned by baby boomers.

12 million small businesses in the US are run by Baby Boomers, but many of them are reaching retirement age and must make a tough decision about their business. On average, 350K Baby Boomers sell their business each year, taking a wealth of experience and wisdom with them. However, this also presents an exciting opportunity for a new generation of entrepreneurs to learn from their expertise and continue to stimulate the economy.

According to Marcum LLP, an estimated 12 million small businesses in the United States are owned by baby boomers. This is an impressive figure given that they are approaching the age at which most entrepreneurs retire. With many skills acquired over their long lives and careers, these owners help build America’s economy and diversify the range of industries with traditional values and experience.

Over 25 million people are employed by Baby Boomer businesses, according to Marcum LLP. That's a staggering number when you consider the impact these companies have on the economy and their employees! Their entrepreneurial legacy continues to thrive today, making a vital contribution to our society.

According to Self Inc, baby boomers and the silent generation own a combined 78.1% of the country's wealth. Baby boomers alone own 52.2%, while the silent generation owns 15.2%. As they enter retirement age, their assets define them more than ever.

Why Buy?

Boomer businesses may have assets like intellectual property and an efficient workforce that can help their long-term potential. However, many privately held businesses lack a transition plan, making it difficult for owners to exit. With attractive financing options and the current state of the economy, now may be the time to invest in these businesses. Recent data shows that 86%-92% of companies still write paper checks for payments, presenting an opportunity for modern innovation.

Mitigate Risk

Boomer business owners nearing retirement age may not have a well-defined succession plan, which can create leadership vacuums and instability within the business. Retaining key talent during the ownership transition can be challenging, as employees might be uncertain about the company's future. To mitigate this, work closely with the current owner to develop a clear and well-structured succession plan that ensures a smooth transition of leadership. Establish open communication with employees to address concerns and provide reassurance during the transition period. Conducting due diligence and developing effective strategies can help increase the chances of a successful transition and long-term profitability.

The Investment & Opportunity

Not all Baby boomer businesses qualify being too small a franchise or owner centric. Businesses with adjusted income of $500,000 to $3,000,000 are a great target opportunity they are too big for most individual buyers who rely on Leverage (debt financing) for most of the transaction cost, too small to attract conventional Private Equity, Family Offices and Venture Capital.

Return on Investment

Is based on a simple model of Buy – Consolidate – Divest and as part of that model is simple arbitrage.