By Dave Driscoll
We read about it everywhere…Where are the younger workers/professionals? Why are there so many unfilled positions? Why can’t we hire the talent we need?
From the flip side, we hear about the great resignation, work/life balance, taking a year off, renting an RV and traveling the country… even with school-aged children in tow!
This disruption in the “normal” workforce stems from the pandemic lockdown and the shockwaves everyone has experienced with sickness and/or the death of family or friends. Finding a younger worker who has not experienced pandemic-related anxiety would be a rarity. Tragically, they have learned at a younger age than recent generations that “normal” life can quickly change dramatically or be cut short.
The fear and reality are empowering them to take risks and make decisions that boomers and Generation X wouldn’t have imagined. Millennials and Generation Z are exchanging the paradigm of the “steady paycheck” for the freedom to experience life, family, and nature on their terms.
The pandemic has also unchained portions of the workforce from the office cubical. Office workers now have the ability to conduct business and earn a living from wherever they choose. How many of us used Zoom nearly daily five years ago like we do now? Parents appreciate the flexibility to lessen childcare burdens and accommodate other family considerations. Commuters of any age aren’t sacrificing time in traffic. And many have realized they are more productive without the interruptions, distractions, and temptations to chat with co-workers. Unrestricted location and flexible hours provide the freedom to maximize productivity while exploring and making financial choices to follow their hearts and dreams.
While following those dreams, many are continuing their independence and not delaying gratification. Meanwhile, supply-chain issues result from a shortage of workers to manufacture, offload, transport, and stock products.
The Federal Reserve of St. Louis publishes the Personal Saving Rate (PSR) https://fred.stlouisfed.org/series/PSAVERT. Personal savings is your personal income minus the cost to live and taxes; it’s basically the portion of personal income left over from spending on life’s necessities. The balance is placed in savings or investments. The ratio of personal savings to disposable personal income (DPI) is frequently referred to as “the personal saving rate.”
From February 2020 to March 2020, the PSR increased to 33.8% and remained at an extraordinarily high level through December 2021. However, in stark contrast, the PSR has now fallen below historical averages indicating folks are spending those massive reserves. Many folks are exploring buying a business in an effort to realize their definition of the “independent lifestyle.”
The M&A broker community has been experiencing increased buyer activity throughout the pandemic, supporting the quest for “lifestyle businesses” that provide autonomy. Owners were slow to join the trend initially, but currently are fully engaged in pursuing their dreams as well… selling their businesses to embrace their retirements with a focus on family, grandchildren, travel, and all the other things they had been postponing.
Seems perfect to me! Younger buyers seeking a better lifestyle are providing the exit pathway for boomers to embrace their retirement objectives.
A logical question is, where are the younger buyers getting the money to purchase mature sellers’ businesses? Actually, there are many sources for the equity needed to qualify for the necessary loans and facilitate the unprecedented business buyer/seller activity. A few examples include:
- Personal savings-see PSR paragraph above
- Friends and family
- 401(k) retirement accounts (think about the stock market growth rate over the past four-five years)
- Seller financing – Sellers can contribute a buyer’s equity with a small seller note
A younger buyer can find the financing to complete the business purchase through conventional sources such as banks and credit unions. To qualify for traditional financing, borrowers need to conform to conventional lending standards of equity inputs from 20% to 30%, qualifying credit experience, leverageable underlying assets of the business being purchased, and adequate free cash flow coverage to support the debt service required to purchases the business.
Another source of financing is the Small Business Administration (SBA). The SBA still focuses on the fundamentals of lending but can assist a borrower with less onerous terms such as percent of equity input and length of amortization. The SBA views seller notes as a plus and that can be considered in the total equity input required from the buyer. Also, the SBA’s focus is on the historical free cash flow produced by the business, with less emphasis on the underlying assets.
So, where are the workers?
Many are buying businesses that support their definition and vision of a well-balanced life.
Given what we all have witnessed and experienced in the past couple years, priorities have shifted. Having been a business owner my entire career, I can understand why younger workers are choosing the entrepreneurial lifestyle and not allowing others to dictate their path.
Dave Driscoll is president of Metro Business Advisors, a mergers & acquisitions, valuation and exit/succession planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at [email protected] or (314) 303-5600. www.MetroBusinessAdvisors.com
As seen in Dave’s monthly column in St. Louis Small Business Monthly.