Silver Tsunami: Navigating the Wave of Small Business Succession

Xavier Egan 
President, Mergers & Acquisition
Capital Asset Advisors
Texas

Small businesses are the backbone of the U.S. economy, with 33.2 million small businesses accounting for 99.9% of all U.S. businesses1. They are credited with creating just under two-thirds (63%) of the new jobs from 1995 to 20211. In the vast landscape of the American economy, small businesses stand as the bedrock of innovation, job creation, and economic growth. However, a significant demographic shift is underway, as a considerable portion of small business owners, predominantly baby boomers, approach retirement age. The impending shift in proprietorship, often known as small business succession, stands ready to significantly alter the contours of the business world.

Disproportionate Ownership and Implications 

Despite making up just 21% of the overall U.S. population, people age 55+ own a sizeable 50.9% stake in America’s small businesses, according to the most recent data. Comparatively, Gen Xers comprise 35% of small business ownership, Millennials 10%, and Gen Z just 2%. This imbalance is due to a variety of factors, including Boomers’ greater access to capital and experience starting and nurturing companies in the pre-digital age.

The result is a small business environment heavily skewed towards older ownership. And with 10,000 Boomers turning sixty-five every day, many businesses will soon change hands. This phenomenon underscores the significant role played by baby boomers in entrepreneurship and business ownership. The potential repercussions of this mass transition could be far-reaching, impacting not just the small business sector but the U.S. economy as a whole.

Experts have dubbed this phenomenon the “Silver Tsunami.” Roughly 10 million small companies, or 65-75% of all small firms, will likely go up for sale in the next decade as baby boomers start to exit the marketplace. And the business value baby boomers stand to turn over is enormous, with estimates pegging it at around $14 trillion over just the next five years alone. As the Silver Tsunami begins crashing down, it will undoubtedly send ripples throughout the small business environment. 

The Impending Wave of Wealth

What does this giant wave of business turnover mean in sheer economic terms? With Boomers holding such a large share of commercial assets, their retirement has the potential to spur the largest intergenerational wealth transfer in modern history. 

The small business succession trend is poised to have a profound impact on the market, influencing various stakeholders, including business owners, aspiring entrepreneurs, investors, and policymakers. When aggregated, Pitchbook finds they account for $2.2 trillion in value transferred through sale/acquisition deals annually.

The small business succession trend presents both challenges and opportunities for the next generation of entrepreneurs. Overall, this unprecedented business turnover provides a major opportunity for ambitious owners, investors, and entrepreneurial families to acquire profitable companies at favorable rates.

For aspiring entrepreneurs, the small business succession wave presents a unique opportunity to acquire existing businesses with established customer bases, operational frameworks, and revenue streams. Acquiring an existing business can offer a faster route to entrepreneurship compared to starting from nothing, providing access to immediate cash flow and potential synergies.

Moreover, the influx of businesses for sale may create a buyer’s market, offering favorable terms and pricing for prospective buyers. This could democratize entrepreneurship by lowering the barriers to entry and enabling individuals from diverse backgrounds to pursue business ownership.

Advantages of Business Acquisition

1. Transfer of Knowledge and Expertise: Acquiring a small business from an older generation allows for the transfer of valuable knowledge, expertise, and industry insights, enabling the continuity of business operations and fostering learning opportunities for the new owner.
2. Established Brand and Reputation: Acquiring an existing business often comes with an established brand identity and reputation in the market, providing a solid foundation for the new owner to build upon and leverage for future growth.
3. Existing Customer Base: Acquiring a business with an established customer base enables the new owner to hit the ground running, avoiding the challenges associated with building brand awareness and acquiring customers from scratch.
4. Streamlined Operations: Millions of businesses undergoing intergenerational transfers have well-defined operational processes and systems in place, allowing the new owner to benefit from operational efficiencies and focus on strategic initiatives rather than reinventing the wheel.
5. Immediate Revenue Generation: Acquiring a business that is already generating revenue allows the new owner to generate cash flow from day one, mitigating the financial risks associated with startups and providing a steady income stream.
6. Access to Skilled Workforce: Acquiring a business often means inheriting a team of skilled employees who are familiar with the business operations, industry dynamics, and customer needs, facilitating a smooth transition and continuity of service.
7. Synergy Opportunities: Acquiring a business in a complementary industry or market segment presents opportunities for synergies, cross-selling, and expansion, allowing the new owner to unlock additional value and drive growth.
8. Proven Business Model: Businesses undergoing intergenerational transfers typically have a proven business model that has stood the test of time, providing the new owner with confidence in the viability and sustainability of the venture.
9. Access to Established Suppliers and Partners: Acquiring a business means gaining access to established supplier relationships, distribution channels, and strategic partnerships, enhancing the new owner’s ability to scale the business and negotiate favorable terms.
10. Community Impact: Small businesses often play a vital role in their local communities, contributing to economic development, job creation, and community cohesion. Acquiring and preserving a small business through intergenerational transfer can have positive ripple effects, supporting local economies and preserving community landmarks.

Navigating the Succession Trend

The U.S. small business environment is undoubtedly entering a transformational period as long-time owners start charting exit strategies. The scope of impending change is historic given shifting demographics and the trillion-dollar wave of wealth destined to change hands in the coming decade.

A study shows that millennials will hold five times as much wealth as they have today and the group is anticipated to inherit over $68 trillion from their baby boomer elders by the year 2030.

As the landscape shifts, entrepreneurs who can navigate these changes stand to benefit. It’s an exciting time in the world of small business, one that promises to reshape the market in the years to come.

With change, however, comes an opportunity for agile entrepreneurs positioned to ride this wave. As the landscape shifts, those who can navigate these changes strategically stand to benefit enormously. Embracing the opportunities presented by intergenerational transfers and small business acquisitions requires strategic vision, diligent planning, and a willingness to adapt to evolving market dynamics. 

Prospective first-time business buyers can take over established companies, leverage existing infrastructure, and still mold operations to fit their passions and capabilities. Private investment firms and alternative lenders bring much-needed transition financing options to the table for qualified deals. Intergenerational family transfers provide continuity and preserve legacies deeply rooted in local communities.

Meanwhile, sellers who take prudent steps to get their house in order – by facing the inevitable need to transition objectively, starting the planning process promptly, and engaging the right professional support early on – give themselves the best shot at striking favorable deal terms that reward years of sweat equity down the road.

The small business succession trend serves both as a symbolic “passing of the torch,” as one generation gives way to the next, but also a runway for enterprising individuals to land bigger opportunities than ever before. The market is ripe for the visionary and bold.

By leveraging the advantages of acquiring established businesses, aspiring entrepreneurs can position themselves for success in an ever-changing entrepreneurial landscape. As the succession trend unfolds, those who dare to seize the moment will play a pivotal role in shaping the future of small business, driving innovation, economic growth, and community development. With determination and foresight, the journey ahead holds boundless potential for those ready to embark on the path of entrepreneurship amidst the shifting tides of succession.

Seize Your Entrepreneurial Journey

The data presents a compelling case – acquiring an existing small business can unlock major advantages for aspiring entrepreneurs compared to riskier startup launches. Now at a potential tipping point moment, timing also favors the bold who position themselves to ride the coming Silver Tsunami.

As we conclude our exploration of small business succession trends and the opportunities it presents for aspiring entrepreneurs, it’s essential to distill the key takeaways and empower you, the reader, to embark on your entrepreneurial journey with confidence and purpose.

First, recognize the immense potential that lies within the realm of small business acquisition. As highlighted throughout this article, acquiring an existing business offers a plethora of advantages, including access to established brands, customer bases, and revenue streams. By leveraging these assets, you can fast-track your path to entrepreneurship and mitigate many of the risks associated with starting a business from scratch.

As you embark on your entrepreneurial journey through small business acquisition, remember that success often requires courage, perseverance, and a willingness to embrace uncertainty. Seize the opportunity to make your mark on the entrepreneurial landscape, contribute to economic vitality, and create lasting value for yourself and your community.

The path to success may be challenging, but with passion, determination, and strategic action, you have the power to achieve greatness. The American dream of small business ownership never shone brighter. Whether you aspire to build companies from the ground up or take the helm of proven entities, room exists to thrive. By acquiring and transforming organizations poised for new stewardship, a seat awaits at the table for visionaries ready to leave their mark.

Sources:

1. The State of Small Business in America | U.S. Chamber of Commerce
2. Older Entrepreneurs Own Half of U.S. Small Businesses, Bootstrap With …
3. ‘Silver Tsunami’ Means More Business Acquisition Opportunities
4. Baby Boomer Retirement Opens Doors to Deals – Marcum LLP
5. Top Small Business Statistics of 2024 – Forbes Advisor
6. Boomers Dying Out Could Lead to a Colossal Transfer of Wealth – Newsweek

Xavier Egan

President, Mergers & Acquisition at Capital Asset Advisors, Texas

Mr. Egan is a distinguished business leader whose expertise transcends conventional boundaries. At the dynamic intersection of private equity and venture, Xavier orchestrates the magic of innovation, entrepreneurial spirit, and financial acumen to shape the future of industries.  Xavier is an experienced financial leader with a successful track record in driving growth and efficiency in complex businesses. He has a well-rounded education, with qualifications in finance, accounting, strategic planning, and executive leadership