Last Sunday Mark Fletcher celebrated his 10,000th post at the Australian Newsagency Blog. In seven years of posting that’s an impressive achievement for someone running both a retail store and a software company.
In his landmark post, Mark looked at the major issues he’s covered on his blog over the last few year and one stands out as the biggest – the payoff for newsagency owners when they sell their businesses.
The failure of many newsagents to manage their businesses for day to day profit. Too many newsagents expect their pay day when they sell and do not realise that their pay day is today, tomorrow and next week … and that this determines what they will receive when they sell.
For Australian newsagencies the news is bad; their established industry is struggling in the face of technological change and regulatory changes – both of which are other points Mark raises – but more importantly the buying and selling businesses in all sectors is undergoing a fundamental economic shift.
Lifestyle Businesses
The underlying idea is that these businesses are what Steve Blank calls “lifestyle businesses”; proprietors buy them to provide an income for their families.
For these “lifestyle businesses” to have a resale value another family is has to raise the funds to purchase the enterprise.
Therein lies the problem, most purchases of businesses are financed by bank loans secured against property.
Late baby boomers and Generation Xers – those born between 1955 and 1970 – are the obvious buyers of these businesses and they don’t have access to the same equity as their parents.
The situation is even worse for those generations following whose high education debts mean an even later entry into the property market and even less equity available should they want to buy these businesses.
For sellers, this means is buyers can’t pay the prices retiring business owners need as their nest egg to support them through twenty or thirty years of bowling or travelling in their later years.
This inter generational mismatch isn’t just restricted to Australian newsagents; it’s a problem around the Western world for business owners whose exit strategy involves selling the business as a going concern for a substantial amount.
Cash poor buyers
As we reach the end of the late 20th Century credit boom, the money isn’t there for people to pay the sort of sums required by existing local business owners to retire in comfort. Even if the banks were prepared to lend the sum required, the buyer’s underlying assets can’t secure the loans and, most importantly, the cashflows aren’t there.
In an Australian newsagent context much of the cashflow has changed because of deregulation and new competition but on the bigger scale changing consumption patterns at the end of the 20th Century debt binge coupled with aging populations and restricted credit are changing the economics of family owned, small local businesses.
For the current owners of these small businesses, it means the pay day has to be today as it won’t be there tomorrow.
The danger is how many will follow the example of the large corporations who find themselves in a similar situation and respond by excessively cutting costs or chronically under-investing which is what has crippled big store retailing across the US, Australia and the UK.
Mark’s constantly pointed out that Australian newsagents have to reinvent themselves, as he celebrates seven years of blogging and 10,000th blog post it’s probably worthwhile considering how many, like the rest of us, will be working in our businesses far longer than we originally expected.