According to U.S. Census Bureau, Baby Boomer entrepreneurs account for 2.3 million small businesses, employing 25 million employees. These jobs are often the first jobs of new employees entering the workforce. Surprisingly, small businesses are considered safer employers than large corporations.

Forbes reports that Baby Boomers own nearly 40% of all small businesses; the majority are service-based companies, so these entrepreneurs have spent years developing relationships with clients and partners. Unfortunately, though, even if they have carefully thought through succession planning, approximately only 25% are successfully transferred – it is difficult to find the right person to replace the original leader of the company.

And Gen X is now entering retirement age. Although more are willing to take on the risk of entrepreneurship, they are more likely to focus on technology-based, rather than service-based companies (e.g., plumbing, HVAC, franchise, or other trade/service-focused) started by Boomers, even when they are extremely profitable. 49% of Millennials say they would start a business in the next 3 years if they had the right idea and funding. Noting, Millennials prefer technology-based start-ups, over the service-based companies founded by Boomers.

Baby Boomers and Gen X ages 45-64 form businesses at a higher rate than any other age groups. Those 55-64 years old form businesses at the fastest rate within the group, often reflecting people who are retiring from larger companies and starting their own businesses.

Baby Boomer Retirement?

• U.S. Census data estimates there are currently about 72 million Baby Boomers in the U.S., and 12 million of them have ownership in small, privately held businesses. Nearly 40% who qualify for retirement indicate they will not retire.  (Since Gen X retirement is fairly new, reliable statistics are not yet available.)
• Approximately 83% of Boomer-owned businesses are expected to change hands over the next 5-10 years (Source: Securian Financial) – a transfer of $14T of business value.
• Going forward, the number of Baby Boomer (and Gen X) businesses going to market will overwhelm the buying community. Per Dan Roth, Managing Director of IBG Business, “Theoretically, if an equal number of Boomer business owners attempt to sell their companies each year as Boomers turn 65, 210k businesses would hit the market each year until 2030.”
• According to Pitchbook, a private capital market research firm that analyzes deals in the lower-middle market (deal between $10M and $100M), the number of completed transactions was 70% more in 2015 compared to 2010; this number increases each year as more and more Boomers retire.
• Small business owners need to scale their business to become attractive targets in the M&A arena.  They can merge or acquire similar companies, expand into new markets or offer different products/services to expand their footprint.

Selling or Transferring is the Most Likely Exit Strategy

• 37% want to transfer the business to a family member; yet a Wilmington Trust survey found “more than 58% of small business owners have no transition or succession plan.”
• 25% want to sell to a partner or key employee. But, as stated earlier, this option is less attractive to younger generations. 
• 25% want to sell to a third party. 
• 10% expect to close down.

Silver Linings for Small Boomer Businesses?

• More Gen Z students are being directed to trade schools. This will help replace retiring employees of the Boomer-owned companies. Training these Gen Z students to own their own company should also be a priority.
• The effort to role small companies up to a platform company (merge, acquire, expand footprint) will make them more valuable and attractive in the M&A market.  
• Wealth value transfer is very attractive:  an estimated $14T in wealth should be transferred by Boomers.