A Further Look | Jun 22, 2021
Who Will Take the Baton When Boomer Business Owners Retire?
David B. Root, Jr.
Business owners of the Baby Boomer generation are arguably the most successful economic engine in the history of the U.S. As of 2020, Boomers own 2.34 million small businesses in the U.S. and employ more than 25 million people. Despite headlines about the domination of large corporate entities, almost 20% of total employment in the country can be traced to the entrepreneurial spirit of this generation.
However, after making it through two major economic events in less than 15 years and the pandemic and the recession of 2008, enough may be enough for some owners as they age. Increasingly, Boomers are retiring at accelerating levels not yet seen in the American workforce.
The challenge for many, though, is determining how to move on from their life’s work while maintaining the essence of all they have built - is it better to sell the business, pass it on to a capable successor, or continue working indefinitely in a reduced capacity?
Not easy questions for those whose lives, and their family’s lives, have revolved around a successful business. The consequences could represent a dramatic shift in how our economy will be powered in the future.
What is concerning is that more than 58% of small business owners currently have no transition or succession plan, according to a recent survey by Wilmington Trust. As many of these businesses are family owned, family firms typically consider a sale as a last resort – usually when the managing family member chooses to retire and there is no clear successor. Given the potential wave of retirements and lack of succession planning, many are wondering how smooth of a succession will it be. What will happen to the next wave of business ownership? What will happen to the jobs of 25 million employees?
While a challenge no doubt, we take a more optimistic view. First, let’s appreciate the wealth created by these owners and leaders willing to bet on themselves. Their risk not only rewarded them personally, but constructed an employment engine for their communities, and at a broader level, the entire country.
Second, these Boomer-led businesses represent a considerable opportunity for potential buyers, including family businesses wanting to diversify holdings, employee stock ownership plans, private equity firms and, increasingly, millennials eager to run their own businesses. With entrepreneurship and new business formation at all-time highs, a reenergized ownership structure may be the key to unlocking efficiency and productivity gains.
Third, for a viable succession plan, Boomers need a young stable of talent to sustain the business. If they don’t have talent in place – they are better off selling. But in some cases, owners haven’t put in place the processes necessary to ease the transition to new ownership.
Further, it is key that the founder’s security doesn’t rely solely on the business for their retirement. For many, selling their business may not be as viable as they think. It isn’t simply a matter of being on the receiving end of a private equity purchase. Having the right talent in place could be the difference between success and failure for Private Equity as well.
Of course, the stakes of transition are high. The outcome will determine not only the post-retirement comfort of many boomers, but also the future of millions of employees. After all, a business should be its own living organism, and the former owner should not be an impediment to moving forward.
Thanks for reading,
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David B. Root, Jr.