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KEY POINTS Baby boomer business owners are retiring in record numbers, fueling a dramatic paradigm shift on Main Street.

Boomers own 2.34 million small businesses in the U.S., employing more than 25 million people.

Many are at a crossroads and need to determine if they will be selling their business or passing it on to a successor.

But a recent survey by Wilmington Trust shows that more than 58% of small business owners have no transition or succession plan.

Geri Lavrov | Getty Images

Baby boomer business owners, retiring in record numbers, are fueling a dramatic paradigm shift on Main Street, and many are at a crossroads, trying to figure out if they should sell their business or pass it along to a successor. Boomers own 2.34 million small businesses in the United States, employing more than 25 million people, according to the U.S. Census Bureau. Twenty-five million workers equates to 25 million families, which in the larger picture is closer to 100 million citizens. Nearly one-third of our population rely on these boomer business owners to make the right decisions regarding building enterprise value, navigating through challenging economic times, business growth and scale and, of course, succession and exit planning. But a recent survey by Wilmington Trust shows that more than 58% of small business owners have not only failed to complete a succession plan, many have not even contemplated a transition or succession plan at any time along the way. The impact on our economy as boomers age, run into health problems, burn out or hit significant marketplace hurdles is potentially catastrophic to our economy. The consequence of failed succession planning directly impacts the 25 million families employed by these small business owners, and the indirect impact is even more staggering. Tens of millions of additional vendors, suppliers, partners, independent contractors, gig workers and others rely on these boomer-owned small businesses to stay in business and are interdependent on one another's existence and welfare. These figures do not even contemplate the hundreds of thousands of small businesses owned and operated by Gen Xers, millennials or even some Gen Zers.

"We are at a crossroads in the history of small business and entrepreneurship in our country in 2020," said Jim Blasingame, host of the nationally syndicated talk radio show "The Small Business Advocate," which focuses on small business and entrepreneurship issues. "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," he said. Another conundrum is the fact that millennials and others in future generations are not interested in running the family business. Younger generations are looking at the sacrifices made by their boomer parents or grandparents and are not as eager to bear the burden of owning and running a business well into their 70s. In fact, there are several movements, perhaps the most notable of which is the Financial Independence, Retire Early (FIRE) movement, which younger generations are following in an attempt to retire decades earlier than the standard retirement age. Despite the trend, barely a ripple of attention is being given to this potential economic crisis by the business media, the 2020 presidential hopefuls or the capital markets.

Money conundrum

To make matters worse, many boomer-owned small businesses (and closely-held companies in general) have the lion's share of their overall net worth tied up in their companies, so if enterprise value diminishes, so does their ability and willingness to retire. And while, according to the same Wilmington Trust survey, 75% of small business owners claim the reason they don't have a succession plan is because they enjoy running their company, what these business owners don't seem to grasp is that proper planning not only enables an owner to run his or her business longer but also paves the way to maximize corporate value. Where will all of these small businesses go as their owners age? Who or what will buy them? Politicians seem to think that "private equity" will just buy everything eventually, but even though the formal private equity inventory reports an "overhang" (overfunded relative to deal flow) of more than $600 billion in 2018, many of these companies are simply too small to be on the radar screens or meet the deal criteria of even the smallest of funds.

To make matters worse, according to a recent report by Refinitiv, global M&A plunged 16% year-on-year to $729 billion in the third quarter of 2019, the lowest quarterly volume since 2016 as growing economic and geopolitical uncertainty curbed the risk appetite of companies considering acquisitions. As a result, many likely strategic and private equity buyers could just "stay on the sidelines" until the dust clears in 2021 or 2022, leaving many small business owners, who wish to retire via business sale, in a state of transactional limbo. "Many small business owners in their 50s and 60s seem to suffer from Ponce de Leon syndrome," said James Roberts, a succession planning and wealth management executive with Community Whealth Advisors in Rockville, Maryland. "They refuse to accept the possibility of their own demise, or assume that advances in medicine will keep them healthy indefinitely. … But deep inside, many are mentally ready to retire, but don't know how to approach planning challenges or what they will do next." Roberts added, "And from a retirement-planning perspective, they really don't know how much is really enough to support their future needs."

Paralysis in decision-making

So why are so many of these boomer small business owners in denial or simply refusing to engage in transition planning? For some the reasons may be financial in nature. They simply are unprepared for retirement and are fearful, many for good reason, that the sale of their company will not fetch enough proceeds to fund their retirement plans and needs. For others the answers may be more emotional than financial. They have some or all of the money they need to live comfortably in retirement but have no clue what they would do all day if their business were sold. Their sense of self-worth, ego and respect all are inextricably tied to the operation of the business.

So many small business owners just keep kicking the can down the road or trying to time the marketplace. At some point you just need to force yourself to make the hard decisions and then figure out what you are going to do with the rest of your life. Rajiv Jain an entrepreneur who sold his firm in 2018

Imagine starting a business in 1975, building it and running it for 45 years and being everyone's boss, matriarch, respected community leader, philanthropist, etc., and in 2020, you sell the business and now consider yourself a "nobody" and a "lazy sloth." Yes, some dream of playing golf and enjoying early happy hours, but most simply have no idea what they would do all day and are in denial as to their vulnerability. "It's a real challenge," says Rajiv Jain, a cashed-out entrepreneur whose company had offices across the globe and who sold his firm in 2018. "You want to find just the right buyer who will continue your legacy and take good care of your employees, your customers and others after the closing, but there are really no certainties. So many small business owners just keep kicking the can down the road or trying to time the marketplace," said Jain. "At some point you just need to force yourself to make the hard decisions and then figure out what you are going to do with the rest of your life."

The game plan