A Further Look: Who Will Take the Baton When Boomer Business Owners Retire?



David Root, CFP®


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, 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 a 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,

Dave


David Root, CFP®

Founder and CEO

DBR & CO


David Root, CFP® is Founder and CEO at DBR & CO, a Pittsburgh-based wealth management firm. If you would like to contact the author, please e-mail him at d.rootjr@dbroot.com or call 412-227-2800.


This material has been provided for general, informational purposes only, represents only a summary of the topics discussed, and is not suitable for everyone. The information contained herein should not be construed as personalized investment advice or recommendations. Rather, they simply reflect the opinions and views of the author. D. B. Root & Company, LLC. does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice that is specific to your situation. There can be no assurance that any particular strategy or investment will prove profitable. This document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such sources, and take no responsibility therefore. This document contains certain forward-looking statements signaled by words such as "anticipate," "expect", or "believe" that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements. As such, there is no guarantee that the expectations, beliefs, views

and opinions expressed in this document will come to pass. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.


All investment strategies have the potential for profit or loss. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses.


The impact of the outbreak of COVID-19 on the economy is highly uncertain. Valuations and economic data may change more rapidly and significantly than under standard market conditions. COVID-19 has and will continue based on economic forecasts to have a material impact on the US and global economy for an unknown period.


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