Millennials are arguably the most collaborative and ambitious group of people on the planet, and they're using these traits to fuel their passion for small business ownership.
In my last column, I offered advice for young Millennials--individuals in their teens and early twenties who are interested in someday acquiring a business. This week, I'm shifting the focus to twenty- and thirty-something millennial buyers who are much closer to entering the business-for-sale marketplace.
Millennials have the motivation to succeed as business owners. But like the generations that came before them, Millennials need to enter the marketplace as prepared and informed buyers.
What We Know About Millennial Business Buyers
While some Millennials are choosing to build their businesses from the ground up, others are managing risk by acquiring existing companies. As they move to purchase small businesses from retiring boomers and other sellers, millennial buyers are reshaping the marketplace in several important ways.
For example, a BizBuySell.com study we conducted in 2014 showed that millennial buyers who are acquiring businesses from retiring baby boomers are much more diverse than previous generations of buyers. Although 87 percent of buyers over the age of 65 reported as Caucasian, just 48 percent of millennial buyers (ages 18 to 29) identified with the Caucasian demographic.
The racial diversity that exists among millennial buyers represents a positive shift in the marketplace. The influx of Hispanic, African-American and Asian/Pacific Islander buyers allows the small business community to tap into the benefits of a more diverse and more inclusive workforce.
When it comes to borrowing, millennial business owners are a mixed bag. Although it can be more difficult for young buyers to secure acquisition funding, recent Experian research shows that Millennials have more commercial and consumer credit accounts than other generations of business owners.
The upside is that Millennials' average commercial loan balance is lower than the average balance for Gen X and baby boomers; the downside is that Millennials have the highest commercial credit card delinquency rate of any generation--3.6 percent of millennial commercial credit card accounts are delinquent 90 days or more.
Combined with the other age-related funding challenges, the delinquency rate could ultimately make it harder for some millennial buyers to secure the commercial and/or seller financing they need to buy businesses.
Tips for Millennial Business Buyers
If you're a twenty- or thirty-something millennial business buyer, you may already have experience in your industry and business leadership. But at this stage of the game, there are still several things you can do to make sure that your career as a small business owner starts on the right foot.
- Work your network. Your existing network of business and industry contacts can be helpful for uncovering available business opportunities. To maintain confidentiality, potential sellers may not advertise their listings, so your network may be your best access to opportunities that aren't officially on the market.
- Improve your credit worthiness. If you have delinquencies on your commercial or consumer accounts, take measures to improve your credit worthiness before you enter the marketplace, even if it means delaying your plans for a year or more. It's difficult enough to secure acquisition financing--a bad credit rating can effectively kill your chances of obtaining financing from commercial lenders and sellers.
- Explore apprenticeship opportunities. In certain industries, apprenticeships provide opportunities to learn required skills and make valuable connections at the same time. In some cases, the right apprenticeship can lead to an acquisition opportunity. But even if it doesn't, the apprenticeship period will provide the time you need to raise funds for a business purchase while providing valuable experience in your future industry.
- Connect with your local SBA and SBDC offices. District Small Business Administration (SBA) offices offer a range of resources for buyers and small business owners. In addition to providing information about various SBA loan programs, SBA district offices offer counseling and resources to help you acquire and operate a successful small business. Also, Small Business Development Centers (SBDCs) operate in most markets to help entrepreneurs get into new businesses, so don't overlook this valuable resource.
- Participate in local business groups. Local business groups (e.g., the Chamber of Commerce) represent a pipeline to the local community. Many of these groups provide resources for business owners and buyers. But more importantly, your participation in business groups allows you to build relationships with other business owners and gain credibility with local consumers.
Finally, it's important to understand that patience really is a virtue when you are acquiring a small business. From identifying the right company to due diligence to closing details, the buying process tests the nerves of all buyers--regardless of age. It is not uncommon for the process to take a year or more.
But by understanding your goals, establishing clear parameters and enlisting the help of people you trust, you can avoid common pitfalls and lay the groundwork for business success.