A new report by the McKinsey Institute for Economic Mobility reveals that, by 2035, as the baby boomer generation retires, one million businesses owned by them are expected to be sold, with an estimated value of $5 trillion, Forbes reports.
The report, called the “Great Ownership Transfer,” calls the business transfer “a new era of business stewardship,” which might sound enticing, but it’s not what everyone may think. As small businesses make up 99% of all operating companies in the U.S., with 60 million workers on payroll, researchers warn that “without intentional action,” several beloved workplaces are at risk of closing or being transferred.
Intentional action can refer to what new owners tend to do with the business, such as expanding it or dumping it for a whole new idea or revised concept. The younger generations of entrepreneurs have the potential to fill the small-business gap with new ventures. Data from the Global Entrepreneurship Monitor show that U.S.-based entrepreneurs ages 18-24 are starting businesses at higher rates—24% of participants in 2023 identified as business owners.
But that doesn’t mean there aren’t possibilities of closures. According to Fortune, 92% of small businesses are eliminated by closure, 5% are
listed as completed sales, and 3% are transferred. The generations buying the businesses once owned by baby boomers are listed as Gen X, who are estimated to inherit $1.4 trillion per year over the next 10 years. Millennials are the ones expected to become the richest generation on record, inheriting close to $300 billion in 2025.While the data from the report may be looked at from a financial aspect, the global management consulting firm highlights it as a structural test of the economy, with a focus on financing and first-time buyers. The argument is that “ownership of a small business has long been one of the most powerful pathways to wealth creation in the United States.” But the data doesn’t cater to all demographics. Of those businesses, only about 28% of the ownership transfer is expected to go to women and Black and Latino individuals.
There is also the threat of large corporations scooping up small businesses, as advocacy group Project Equity warns of massive layoffs and further concentrating wealth if boomers sell a large part of their businesses to them, especially without a succession plan. While there are plenty of resources out there for entrepreneurs to get their ideas off the ground, McKinsey recommends a market for ownership transfers as a financing tool, since SBA 7(a) loans require personal guarantees that several first-time or underrepresented buyers can’t meet.
The report calls on banks, lawmakers, and civic institutions to emphasize underwriting standards, bundle advisory services, and label small business acquisitions as a scalable market for the next generation of entrepreneurs.
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