Millions of boomer small business owners will soon retire. Will their companies just disappear? | Gene Marks
Want to buy my business? It’s been very profitable.I’ve run it for more than 25 years.But no, you don’t want to buy it.Like most small businesses in this country, there’s really nothing of value here.According to the Small Business Administration, there are approximately 33m small businesses in the US.
But fewer than 7m actually employ people.The rest comprise freelancers, side gigs and independent contractors.I’m sure many of these people are making a living.But are they building assets? A brand? Probably not.If that “business owner” suddenly disappears, their business disappears with them.
No one wants to buy a business like that.There’s no value.My company is no different.Like so many other business owners, I’m a micromanager and a control freak.My company has a few employees but in reality I’m nothing more than a glorified independent contractor.
The business is built around me,If I get hit by a bus, my company crumbles into nothing,No one wants that,We live in a service-based economy, which according to federal data accounts for as much as 77% of US GDP,My business is part of that.
I bill for hours incurred,I manage a handful of open projects at any given time,I’m constantly scrambling for more work,There’s no commitment,There’s no requirement to use us.
Unlike big tech companies, my clients are not bound to any contract,And even if they were, there would be little benefit to me – enforcing contracts is too expensive and time-consuming for a company my size,A buyer of my company would not be buying any customers – they’re free to go wherever they want,There’s no value in that,Being a service business, I have no hard assets to sell.
My inventory is hours.There are no products on shelves.No machinery or equipment.No buildings or properties or furniture or fixtures.And, thanks to the pandemic, there’s no office.
All of my employees are remote.Our “corporate headquarters” is literally a post office box.Our phone system is virtual.Our software and data is in the cloud somewhere.It all makes for a lean, efficient organization.
But it’s a house of cards.A just-published report by McKinsey says that there will be a “great ownership transfer” over the next 10 years when baby boomers who run as many as 6m small and midsize American businesses retire.UBS’s 2026 Global Entrepreneur Report has found that nearly a third of global entrepreneurs are actively considering exiting their businesses within the next five years.For those aged 65 and over, this figure surges to 57%.Sounds great.
But if you’re one of those business owners – and you run a service business like mine – I wouldn’t get your hopes up for a big payday.McKinsey warns that “without intentional action, many viable small businesses may close rather than transfer ownership”.It’s probably true.Can this be remedied? The clock is ticking.And there are only a few options.
A business owner could hand down the business to their kids.But this only works for people with kids who are actually interested in doing the work.For some, this is a viable succession strategy.A younger generation could breathe more life into the business.This worked for me.
My dad and I were the only two involved in my business until he unexpectedly passed away back in 2005, which left me no choice but to take things over and grow it.I added employees and products and, with good fortune, was able to grow profits significantly beyond what the two of us were making.Many owners could do the same and provide an ongoing income stream for mom and dad.Or the kids could run it into the ground.Instead, some older business owners may want to build an actual business with value.
This would involve changing their billing models.Enforcing contracts.Buying property.Creating processes.Building infrastructure.
Hiring a great management team.Creating a sustainable brand.Sounds great, but there’s a problem with this approach: it’s exhausting.Ask any person over the age of 60 to do this and they’ll be like: Who has the energy? That’s a younger person’s game! And they’re not wrong.After spending 40-plus years in the business world, I understand why most people my age just want to play golf, relax and spend time with their grandkids.
There is one other good option for a service business owner: build cash,I’ve been pulling profits out of my company all of this time and doing my best to save,I’ve bought life insurance,I’ve put everything in a trust to protect against liabilities and potential estate taxes,I know that my business won’t be providing me with retirement income.
But my savings will,All of this presents a great opportunity for younger entrepreneurs,Why start a business from scratch when all of these business owners are looking to sell? Why not instead partner or purchase from an older business owner, keep them on as a mentor, take over their operations, assume their customers, leverage what employees, contractors and relationships they have, and then make your improvements? Instead of nothing, you’ve at least got a head start,
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