By Anthony Kelly, Excendio Advisors
According to U.S. Census Bureau, Baby Boomer entrepreneurs account for 2.3 million small businesses and 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.
Per Forbes, Baby Boomers own nearly 40% of all small businesses. The majority are service based companies. These entrepreneurs have spent years developing relationships with clients and partners. Even if they have thought through succession planning, approximately 25% have been successful, it is difficult to find the right person who can replace the original leader of the company.
Most Millennials and Gen Xers prefer Influencer or Internet based companies, which they see as an easier and quicker path to their goals. Most are not interested in taking over the plumbing, HVAC, Franchise or other trade/Service focused businesses of their parents even if they are extremely profitable. There are currently 10K Boomers retiring each day. Nineteen percent own small businesses.
Two observations of Boomer Entrepreneurs
Baby Boomers as a group are viewed as having these characteristics:
- Strong work ethic. Not looking for a quick hit.
- Confident they can succeed. Rely less on reason and more on intuition
- Clear Goals.
- Focused. More sensitive to nonverbal indications.
- Team Builders
- Methodical in approach to business.
- Rely on first impressions.
- Use narrative presentation as opposed to lecture style to get information across.
- Baby Boomers ages 45-64 form businesses at a higher rate than any other age groups with those between 55-64 years old forming businesses at the fastest rate of any age groups. This reflects Boomers who are retiring from larger companies and starting their own business.
Baby Boomers are Nearing Retirement Age
- Recent U.S. Census data estimates that there are about 72 million baby boomers in the U.S. And within this generation of prolific entrepreneurs, 12 million of them have ownership in small privately held businesses. Nearly 40% who qualify for retirement indicate they will not retire.
- An estimated 83% of them are expected to change hands over the next 5-10 years (Source: Securian Financial). A transfer of $14T of business value.
- According to Pitchbook, a private capital market research firm that analyzes deals in the lower middle market (deal size between $10M and $100M), the number of completed transactions was 70% more in 2015 compared to 2010.
- Going forward the number of Baby Boomer 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.
- Small business owners need to scale their business to become attractive targets in the M&A arena.
The Objective of Boomer Entrepreneurs
Selling or transferring the business 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 of succession plan.”
- 25% want to sell to a partner or key employee. As stated earlier this option is decreasing in attractiveness to younger generations.
- 25% want to sell to a third party.
- 10% expect to close down.
As we see it there are a couple of silver linings for the small boomer businesses.
- More students are being directed to trade schools. This will help replace retiring employees of the boomer owned companies.
- The effort to role small companies up to a platform company will make them more valuable and attractive in the M&A market
- The wealth Value transfer is very attractive. An estimated $10T should be transferred by Boomers.