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By the year 2030, every one of the estimated 74 million baby boomers living in the U.S. will be over the age 65. This will have a massive impact on our economy and small businesses owned by baby boomers will see a shift unlike anything in modern history. Why? Well, baby boomers make up a healthy percent of small business owners – what they do with their business will have a ripple effect on millions of employees and local communities.
The Silver Tsunami
Over the next 15 years it is estimated that nearly $10 trillion in value and assets in small businesses in the U.S. will need to transition as boomers enter a new life stage and desire to shed their businesses. That’s right. Ten. Trillion. Dollars. It is a staggering number, even for the world’s biggest economy.
What a great opportunity, right? Not so fast. Let’s talk about supply and demand. Today, small businesses owned by baby boomers employ 25 million people in The United States. Baby boomers own approximately 41% of small businesses in the U.S. and as many are approaching the age where they are seeking new adventures or simply unable to manage their business, there is a rapidly growing need to transition small businesses to the next generation. Some experts believe this transition is reaching a point of urgency,
“If our nation’s baby boomers don’t get more focused on planning for the sale or transition of their businesses on an urgent basis, then we’ll have millions of citizens whose jobs and careers are in peril and millions more who will not be able to properly retire.”
Small Business Advocate
The Rise In Employee Ownership?
These experts may have a point, according to Project Equity, an organization focused on employee ownership as a way to ensure small businesses remain in their local communities, less than 15% of small business owners have an exit strategy in place. In the event an owner wants to transition their business on short notice, finding a buyer or resource to assist may be a struggle as there are likely more and more owners competing for the same prospective buyers or resources to assist in the process.
Creating An Exit Strategy
So what should small owners do? That depends on a number of factors but, nearly every expert will agree that starting to develop a plan is vital. In short, do not wait until you have to transition to start planning. That said, many small business owners struggle with where to start and what to do. This makes sense, getting a business off the ground and running it on a day to day basis leaves little time to think about exiting. Even the most basic steps are useful. Take an hour or two to consider the following and write out answers to some of the more important questions.
- How long do you want to run your small business?
- Are your business financials up to date?
- What do you believe is the current valuation of the business?
- Do you anticipate that value increasing?
- Who are some of the potential buyers for your business?
- Is this a family business and have you discussed a succession plan with those you believe will take over?
- Is there an employee (or employees) that may want to buy the business?
- Are you willing to help train a new owner?
More Owners Exiting Their Small Business
As the number of small businesses come onto the market over the next decade, finding a buyer may take longer than many business owners expect. Again, baby boomers will increase the supply but demand must come from the next few generations. Generation X, those that follow boomers, are entrenched in their careers and taking care of kids and aging parents and there are fewer of them than there are baby boomers. This may fall to millennials as the generation that will need to step in and take over existing businesses.
Finding A Buyer For A Small Business
Finding a buyer can be tricky, the best place to look may be within the business or the local community. Many owners may find that selling to a younger partner, an employee or even a group of employees as a viable option and a smoother transition. Optimizing for price must be weighed against what could be a more assured outcome of transitioning to a known buyer. Given that most transactions are seller financed, having a byer that understands the business and may have relationships with customer and/or suppliers could very well help the business maintain business or grow revenue and lead to a safer payout for the seller.
Before marketing any business to prospective buyers, it is important to prepare by making sure financials are accurate and up to date, taxes are current and important documents like formation or incorporation documents are available. Trying to deal with these when a prospective buyer is interested is likely to decrease the chances for a successful outcome. Plus, scrambling for this information only creates stress. So, start with getting things together and take time, and invest as needed, to get up to date and organized.
In summary, the U.S. will see more small businesses seeking an exit in the next 10 to 15 years than any other time in modern history. The time to plan is now and be prepared for any outcome, whether it is selling for a desirable price or selling assets to pay down all liabilities and take cash proceeds. To learn more about options for exiting your small business, check out our free guides. We are in for a historical economic transition – be ready!
Eric Grafstrom is the founder and CEO at ExitGuide. He has over 20 years experience working in leadership roles for numerous companies and has experience with a range of exits including sale to a third party, management buyout, asset purchase agreements and dissolution.