Is fossilisation eroding your business wealth?

The term ‘fossilisation’ came up in discussions with a franchising professional recently, who believes a number of baby boomer small business owners have been trying to trade out of the current economic dip to maximise their retirement nest egg, yet may have actually ended up eroding business value further.

My colleague believes many baby boomer small business owners are in denial, thinking they can trade out of the current downturn when in fact they have ‘missed the boat’.

The consequence of this will be that their retirement nest egg will vaporize and they walk away with close to no goodwill and therefore no money to fund retirement.

Fossilisation in franchising

This is predicted to also flow over into franchising with baby boomer franchisees, and may already be starting to show.

For instance anecdotal evidence suggests a rise in franchise agreement non-renewals (in some franchises) is actually the result of the franchisees not renewing, rather than the franchisor denying a renewal at the end of the franchise agreement term, which is usually assumed to be the case.

This means those franchisees who do not renew their agreement are simply walking away from the business, rather than selling the business even at a low return, which is quite alarming.

This is likely to have a significant impact psychologically because often a lifetime of commitment will be gone resulting in a lifestyle downgrade causing a major hit to a franchisee or small business owner’s self-esteem.

Further, this will not only have devastating effects on individuals and their families, but also has the potential to have significant negative impacts on the economy.

Potential impacts on Australia’s economy

  • Impact on the pension system with these proposed self-funded retirees now relying on government assistance
  • Impact on productivity and employment as Australian small businesses simply close as they are unsaleable and their children, who have seen their parents’ struggle, don’t want the burden or commitment leading to a loss of employment for any staff
  • Impact on commercial landlords due to vacant tenancies
  • Impact on small business lending banks

Given the potential wide-reaching impact on the economy governments should considering doing more to help small business.

Small business owners also need to invest in on-going business advice throughout their tenure to identify the best time to sell and how to run their business to generate the most wealth and avoid the downfall of fossilisation.

What do you think? Join the discussion on our LinkedIn Group.