Boomer Bust
Why exit planning is becoming more critical than ever
By Donald Feldman
Date Published: 4/1/2016


Currently there are about 28 million small businesses in the U.S.—those employing 500 or fewer employees. Of these, about 19 million have zero or one additional employee. Of the remaining 9 million, 3.5 million are owned by persons younger than 50 or older than 70. Therefore, 5.5 million businesses are owned by the Boomer Generation. Boomers are 25% of the population but own 60% of small businesses with a total value variously estimated at $10–$15 trillion. 

During the last 10 years, early Boomers have been selling primarily to late Boomers. From here on in, Generation Xers, now entering their forties will be the prime business buying group. Beginning in 2013, for the first time, and every year thereafter, the primary motivation for business sales has been Boomer retirements (Pepperdine University, Market Pulse Survey 2013). 

The story of the Gen Xers is well known. They famously don’t define who they are by what they do. Life outside of work defines them. They want limited work commitments, flexibility in work schedules, benefit portability, and convenient technology so that they can work away from the office. Xers don’t get this lifestyle by owning businesses. I recently had the opportunity to address a large group of business owners—about 60% were Boomers, with most of the rest Xers with a smattering of Millennials. I asked the following question: Would you pursue an opportunity that required working 55 hours per week? Virtually all the Boomers said yes while the Xers for the most part wouldn’t consider it regardless of the amount of money they could earn. Xers are simply much less likely to invest the sweat and make the commitment required to own and run a business. 

Retiring boomers are plagued by uncertainty: Will I have enough money to retire particularly considering my long post-retirement life expectancy? Can I maintain my lifestyle? What about healthcare? About 70% of business owners over 50 plan on selling in the next 5 years and 85% of owners over 60 plan on doing so. The Boomer business owner fantasy is “I’ll find a young buyer just like me who will pay me all the money I need to retire.” Unfortunately, there are far fewer buyers for Boomer businesses than there are sellers. Boomers have been building businesses that Xers don’t want.

If that weren’t enough of a problem, the exiting Boomer faces 2 additional headwinds. 1) Tax rates are going up so that net proceeds from a sale are diminished and there will be a higher tax burden on investment income. 2) We face a future of diminishing investment returns. It was not so long ago that a retiree could expect an annual return of 5%–7% on a conservatively managed retirement portfolio. In an era of 1% CDs, 4% investment grade corporate bonds and 2% 10-year Treasury bonds those expectations have become dramatically reduced.

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