re: Many Baby Boomer businesses going for sale in the next 5-10 years.

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They’re paying for goodwill! My reputation!

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EBITDA multiple + goodwill multiple = boomers dream

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1. Buyer owned similar businesses already and were looking to expland/move into new territory and thought that they could run the new business under their old large corporate business model

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I’ve expanded my CPA firm to two additional markets since Covid. I’m approached monthly by brokers who are desperately trying to sell their boomers firms. They usually ask 1.5x revenue and we end up settling somewhere close to 1x.

They know that 75% of the CPA workforce is at or above retirement age so they are trying to get out before the onslaught happens. Some are also fearful that they will be replaced by AI. I could sit back and wait for the market to become saturated or I can pick and choose the better firms hitting the market.

Yeah 1.5x way too high for boomer CPA firm. 1.0x the going rate as you have noticed

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Not handing over or selling to their kids?

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Kids aren't interested. Mine is getting sold.

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Define "goodwill".

What is that?

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I believe he's talking about the intangible working relationship the business has established with it's customers/clients over the years. If you buy the business, you buy the name/brand, and, therefore, the "goodwill". Not the term I'd use. Reputation or customer loyalty would be better.

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These Boomers think they are sitting on gold mines and will want 3x what their life’s work is really worth. Going to be a rude awakening for many of them.

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They want to get paid for their past and not for the future…

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I believe he's talking about the intangible working relationship the business has established with it's customers/clients over the years. If you buy the business, you buy the name/brand, and, therefore, the "goodwill". Not the term I'd use. Reputation or customer loyalty would be better.

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Oh boy.

There may be a few ways that could be realistic.

Maybe the buyer works in the same trade or industry and is knowledgeable about the subject matter and well-known enough for the existing customers to be aware.

Maybe the buyer is a current employee of the business in question and already has relationships with the current customers.

Maybe the buyer and seller have a prearranged agreement that the seller will remain in the business in a gradually decreasing function over the next few years while the buyer learns the business and takes over.



I just have a hard time imagining any small business where a book of customers makes the business worth many times it's assets.

So the boomer seller runs an HVAC and Plumbing service. Cool. You're not gonna keep his customers when you tell them you're not honoring his labor warranties. Why would you? You don't know what kind of work he did. That customer not only has to live without AC for a couple of days, but he has to pay you again for an installation he just got done last year.

Maybe the boomer seller has a small concessions business, and he sells hot dogs and pretzels at the local triple A ball park - and he is only in year 2 of a 5 year contract. That's awesome for the seller, but when the team finds out their idiot GM signed that contract he's fired and you're going to court to try and keep something that you just paid for.

I mean, I just made up those examples, but I'm genuinely asking - what kind of small business could be so valuable and irreplaceable that a customer list and name brand has a tangible financial value?

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Goodwill is an intangible asset that basically makes a business worth more than the totality of the tangible assets.

It includes the business’ reputation, client base, experience and reputations of the employees, in house and efficient method of production, methods, etc.

Think of a restaurant near you that has a name you remember, that is established, is consistent, is friendly, service is fast and accurate, and you know the food is excellent.

Then think of one that just opened and is trying to get established.

The first restaurant has more “goodwill” than the second one. And that makes the value of that restaurant more. Assuming the tangible assets like the building, equipment, etc. are close to the same in value.

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See, I feel like we're past talking about small businesses. I understand what you're saying here, and I completely agree. I just wouldn't consider purchasing Mike Anderson's to be buying a small business.

Maybe I'm wrong about what a small business is though.

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mean, I just made up those examples, but I'm genuinely asking - what kind of small business could be so valuable and irreplaceable that a customer list and name brand has a tangible financial value?

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A mfg business that supplies say components or products spec’d into auto or aerospace platforms that creates a viable backlog and nearly guaranteed future revenue through multi year contracts.

That product and business has value potentially well in excess of assets.

Granted this depends on your definition of small business. I considered a business with EBITDA of $5 million small, but others might not

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Granted this depends on your definition of small business. I considered a business with EBITDA of $5 million small, but others might not

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OP specifically said mom and pop.