As the baby boomer generation approaches retirement age, a seismic shift is occurring in the small business landscape. Over half of small businesses in the United States are owned by individuals over 50, representing a staggering $10 trillion in value. This impending wave of retirements has created a unique opportunity for younger generations, particularly millennials and Gen Z, to step into entrepreneurship by acquiring established businesses rather than starting from scratch.
The Boomer Business Dilemma
Baby boomer business owners are facing a critical juncture as they approach retirement. Many are grappling with the question of what to do with their life's work. Should they pass it on to family members, sell to employees, or find an outside buyer? This dilemma is exemplified by George Coulam, owner of the Texas Renaissance Festival, who at nearly 90 years old, is still searching for the right successor to take over his beloved event that draws over 500,000 annual visitors.
The challenge of finding suitable successors is not unique to Coulam. Many boomer business owners are discovering that their children have little interest in taking over the family enterprise. As Edie Ellis, a Chicago-based consultant, explains, "The kids of small-business owners run the opposite direction, because they saw the lifestyle. They saw that mom and dad worked 24/7, they didn't have a weekend off, you know? They don't want to do that".
A Millennial Opportunity
For millennials with entrepreneurial ambitions, this mass exodus of boomer business owners presents a golden opportunity. As they enter their prime wealth-building years, many millennials are anxious about their financial futures, particularly in light of a turbulent housing market. Buying an existing business offers a compelling alternative to traditional paths of wealth creation.
The appeal of acquiring an established business is clear. As Neil Gutekunst, who along with his wife Jennifer acquired Shaw & Tenney, a 150-year-old manufacturer of wooden paddles and oars, puts it, "The businesses we purchased all had cash day one". This immediate cash flow, combined with existing customer relationships, brand recognition, and operational systems, can provide a significant head start compared to launching a new venture from the ground up.
The Changing Face of Business Buyers
The shift in business ownership is already underway. According to a survey by Forrester, 64% of people buying businesses were millennials or younger. This trend reflects a growing recognition among younger generations of the value in acquiring established enterprises.
Nancy Forster-Holt, a former business owner and current clinical associate professor at the University of Rhode Island's business school, shares her experience: "When we decided to retire two years ago, we thought our children might want to take over. But no one showed any interest". This scenario is playing out across the country, creating opportunities for unrelated buyers to step in and continue successful business legacies.
The Business Acquisition Landscape
The US Small Business Administration reported nearly 35 million small businesses in the country as of July 2024. While the vast majority are sole proprietorships, each year about 65,000 businesses are listed for sale on BizBuySell, an online marketplace for business transactions.
In the second quarter of 2024, BizBuySell listed over 35,000 businesses with a median asking price of $395,000 and median revenue exceeding $700,000. Interestingly, this compares favorably to the median home price of $412,000, suggesting that for some, buying a business might be a more attractive investment than purchasing property.
Advantages of Buying an Existing Business
Acquiring an established business comes with several advantages:
Immediate cash flow: Unlike startups, existing businesses often generate revenue from day one.
Established brand and customer base: Years of goodwill and customer relationships come built-in.
Existing systems and processes: Operational frameworks are already in place, reducing the learning curve.
Easier financing: Banks are often more willing to lend for acquisitions of profitable businesses.
Tangible assets: Many businesses come with equipment, inventory, or real estate that can serve as collateral.
Jennifer Gutekunst, who now owns multiple businesses in Maine with her husband, emphasizes the enjoyment factor: "It's fun," she says, adding that it "beats not having a satisfying retirement plan".
Challenges and Considerations
While the opportunity is significant, potential buyers should be aware of the challenges:
Location limitations: Many desirable businesses are in small towns or rural areas, which may not appeal to urban millennials.
Skill requirements: Some businesses require specific expertise or licenses that not all buyers possess.
Hidden issues: As Edie Ellis warns, "Have they been paying their bills? Have they been paying the IRS? You don't know what you don't know".
Lifestyle adjustments: Running a small business often means long hours and unpredictable challenges.
Market volatility: Not all small businesses are profitable, and market conditions can change rapidly.
Financing the Purchase
One of the most significant hurdles in business acquisition is financing. However, several options are available:
Seller financing: Some owners are willing to accept deferred payments or a share of future earnings.
SBA loans: The Small Business Administration offers loan programs for business acquisitions.
Traditional bank loans: Established businesses with assets often qualify for conventional financing.
Private equity: While more common for larger acquisitions, some private equity firms focus on small businesses.
The Role of Private Equity
Private equity firms have long recognized the value in small business acquisitions. The American Investment Council reported that 85% of private equity investments in 2022 were in small businesses. This institutional interest validates the potential of this market.
However, many family business owners prefer to sell to individuals who will continue their legacy rather than to Wall Street firms. This preference creates an opening for millennial buyers who can offer a more personal touch in the transition process.
The Changing Nature of Business Succession
Traditionally, small businesses were passed down through families, typically to the eldest son. This model sustained many businesses for generations, such as Dinkel's Bakery in Chicago, which operated for a century before closing in 2022 when no suitable family successor was found.
Brian Brogan, a wealth advisor and educator in family business, notes that many owners still prefer to keep their businesses in the family. However, when that's not possible, they seek buyers who will honor the company's legacy and values.
Creating Your Own Inheritance
For millennials without the prospect of inheriting family wealth, buying a small business offers a way to create their own legacy. As the article's author notes, "Buying up small businesses allows people without wealthy boomer parents to cash in on the trillions of dollars of wealth the generation is sitting on". This approach not only provides immediate business ownership but also sets up the potential for long-term wealth creation that can be passed on to future generations.
The great boomer business exodus represents a once-in-a-generation opportunity for millennial and Gen Z entrepreneurs. By acquiring established businesses, younger buyers can leapfrog many of the challenges associated with startups while benefiting from existing cash flows, customer relationships, and operational systems.
However, success in this endeavor requires careful consideration, thorough due diligence, and a willingness to adapt to the demands of small business ownership. For those who can navigate these challenges, the rewards can be substantial – both financially and in terms of personal satisfaction.
As the baton of business ownership passes from one generation to the next, it's clear that the entrepreneurial spirit remains alive and well in America. The coming years will likely see a significant reshaping of the small business landscape, driven by this generational changing of the guard.
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