Boomers are selling their small businesses; Millennials are buying

When George Coulam decided to retire, he had a problem. He owned the Texas Renaissance Festival — which bills itself as the largest such gathering in America, drawing more than 500,000 visitors annually — and needed to find a successor. Several longtime associates were eager to take over, but Coulam had been running the fair for decades; he wanted his pride and joy to be in the right hands. Suitor after suitor made bids to buy the business, but none seemed right.

In the US, older business owners are arriving at the same time. More than half of small businesses – those with a single owner and fewer than 500 employees – are owned by people over 50. Wealth management firm NewEdge Wealth estimated that boomer-owned businesses in the U.S. are worth about $10 trillion. Those boomers can’t retire and enjoy their sunset years until they figure out what to do with their businesses. Can a relative or senior employee take over? Should it close? Or can I sell?

For millennials with the entrepreneurial bug, this boomer retirement bomb could be a boon. As they enter their first years of building wealth, many are concerned about how they will save for retirement; in a turbulent real estate market, buying an existing business offers a tempting opportunity. Market research firm Forrester found in a survey it conducted last year that 64 percent of people buying businesses were millennials or younger. Sure, many small businesses aren’t glamorous—think dental practices or accounting firms—and involve long hours and unpredictable market forces. But it might just be a better path to retirement than building a business from scratch.

Private equity firms have long seen the wisdom in acquiring small businesses. Why should they be the only ones reaping the rewards of boomer labor?

In the late 1990s, Nancy Forster-Holt, an accountant at Ernst & Young, was transferred from Sacramento, California, to Maine. She fell in love with the state and her now-husband, Steve Holt. They decided to buy a business together. Since she had experience as a CFO and he was an engineer, they focused on manufacturing companies. They soon found Shaw & Tenney, a century-and-a-half-old maker of wooden paddles and oars in Orono. Before the Holts bought it in 2003, Shaw & Tenney had just two owners: the Tenneys, who operated it until 1978, and Paul and Helen Reagan.

When they decided to retire two years ago, the Holts thought their children might want to take over. But no one was interested. “They all grew up in it and worked in it,” Forster-Holt, who is also a clinical associate professor at the University of Rhode Island’s business school, told me. “Our latest graduated in 2022 and is a food scientist, and we are oars and oars makers.” The couple realized they needed to sell and began marketing the company while planning their graduation party.

That’s when Jennifer and Neil Gutekunst came along. When they acquired Shaw & Tenney in 2023, they had two other small businesses under their belts. They took what Holts had built – a recognizable brand, equipment, a highly skilled workforce and customer relationships – and ran with it.

“The businesses I’ve acquired all had cash on day one,” said Neil Gutekunst. None of the Gutekunsts had sales experience, but the three companies they acquired had strong customer bases and strong reputations. All they had to do was keep things running.

The US Small Business Administration said in July that there are nearly 35 million small businesses in the US. The vast majority of these, 82%, had no employees other than the owner, meaning it probably wouldn’t make sense to sell. But each year, about 65,000 of the remaining companies are listed on BizBuySell, an online listing service for companies for sale.

Edie Ellis, who runs a consulting firm in Chicago and has advised industrial companies on acquisitions, said the peak in small business sales began when baby boomers started turning 60, around 2006. Many owners found that their kids won’t take over, so they’ve been looking for buyers. Children of small business owners “run in the opposite direction, because they’ve seen the lifestyle,” Ellis said. “They saw that mom and dad were working 24/7, they didn’t have a weekend off, you know? They don’t want to do that.”

Data from BizBuySell indicates that small business sales have been lower since their peak in 2006 and declined during the pandemic, but quarterly transaction volume has recovered for much of 2020 and held steady. In the second quarter of this year, BizBuySell had listings for more than 35,000 businesses with an average asking price of $395,000 and an average income of more than $700,000 — meanwhile, in the real estate market, the median home price recently reached $412,000. Demand for these businesses is increasing, pushing the average sale price up 25% over last year. While not all of these companies will be a good investment, the right business could provide an edge over traditional routes to building wealth.

The advantage of buying an existing small business, in addition to inheriting the fundamentals – a brand, suppliers, systems and customers – is that financing an acquisition is often easier than financing a brand new business. You don’t have to have hundreds of thousands of cash on hand to take advantage. In some cases, sellers are willing to help finance because they want the business off their hands. Some will accept deferred compensation or a portion of future earnings as a way to reduce the upfront cost. Buyers with good credit can also borrow money through the Small Business Administration.

Existing companies often have assets that can help facilitate financing. If the business owns land, buildings or equipment, they can serve as collateral for a bank loan. Plus, with income already coming in the door, lenders know they won’t have to wait to get paid.

You come to work and have a to-do list and a truck hits your building and now your day is completely different. Do you have the temperament for it?

Of course, there are some logistical challenges in finding the right business—less than a quarter of businesses listed on BizBuySell sell in any given year. First, large small businesses are not always in places where people want to move. Dave Specht, director of the Drucker School Global Family Business Institute at Claremont Graduate University, told me that the situation gets worse when people in small towns don’t want to talk to their neighbors about their business plans. “There’s a lot of secrecy about the timing of the transitions and things like that,” said Specht, who lives in a small town in Washington. Often, potential buyers end up looking elsewhere. “They go to a bigger city or a bigger city because they just don’t know.”

Some companies need a buyer with a combination of skills that is not easy to find. Some have real estate that is worth more than the rest of their assets. And some are “lifestyle businesses,” like bookstores, yarn shops, and other Main Street businesses that don’t generate much profit outside of the owner’s small salary.

Other businesses may have hidden problems, Ellis told me. “Did they pay their bills? Did they pay the IRS? You don’t know what you don’t know,” she said.

The challenges don’t stop once you’ve made your purchase. Less than two-thirds of small businesses in the US in 2022 were profitable, and more than a million businesses of all sizes close each year. “You have people coming in from Wall Street who want to buy a bed and breakfast in Maine because they’ve always loved Maine,” Forster-Holt said. “But guess what? They work 24/7, 365 days helping other people enjoy Maine.”

She noticed that people with corporate experience sometimes struggle with the fluid hierarchy and ever-changing priorities of a small business. “You come to work and you have a to-do list and a truck hits your building and now your day is completely different,” she said. “Do you have the temper for it?”

The Holts found that they did. “I loved working there,” Forster-Holt told me. And those who can roll with a little turmoil can reap the financial benefits.

Private equity firms are certainly familiar with these advantages. The American Investment Board reported that 85% of private equity investments in 2022 were small businesses. Citing data provider Preqin, PwC recently reported that at the end of May, private equity firms had $1 trillion in liquid assets seeking investment. These companies are interested in small businesses that operate similarly in many markets and can be grouped together, such as plumbing or HVAC companies.

“Private equity is smart about targeting family businesses,” Specht told me. “A lot of them are great businesses.” Fortunately for millennial buyers, many homeowners would rather not have to deal with Wall Street.

In 2022, Dinkel’s Bakery, a beloved Chicago institution, closed after a century in business. Third-generation owner Norm Dinkel wanted to retire and couldn’t find a buyer who wanted to operate the business. Anyone lucky enough to have had a chocolate Dinkel donut or a fresh strawberry paczki knows the loss.

Traditionally, small businesses were family businesses, and the eldest male child was expected to take over when the patriarch was ready to step down. That brought Dinkel past one hundred years of operation. Many small business owners want to keep the company in the family, said Brian Brogan, who works as a wealth advisor to family business owners and teaches in the family business program at Saint Joseph’s University of Pennsylvania. If that’s not an option, they look for someone they can trust to continue the business.

Even if you can’t plan to receive an inheritance, you can create one for yourself (and your own children).

Coulam, owner of the Texas Renaissance Festival, is a little older than the average boomer business owner — he’s entering his late 80s. But even he hasn’t found a suitable buyer. His search for succession, which was documented in the recent HBO series “Ren Faire,” highlights the difficulty of passing on a business one has spent a lifetime building. Especially with small businesses, it’s not just about the numbers, it’s a very personal decision.

Still, for buyers who can find the right fit, snapping up an existing business could be a smart move. For the Gutekunsts, an acquisition meant as a lifestyle change turned into a collection of businesses built around the deep woodworking tradition of southern Maine. “It’s fun,” Jennifer Gutekunst tells me. It is also better not to have a satisfactory retirement plan.

Last year I wrote about the “Great Boomer Wealth Transfer” myth — that most boomers don’t have many assets to pass on, and those who do are likely to be consumed by the high cost of elder care. But even if you can’t plan to receive an inheritance, you can create one for yourself (and your children). Buying small businesses allows parentless boomers to take advantage of the trillions of dollars of wealth the generation is sitting on.

Ann C. Logue is a writer specializing in business and finance. She lives in Chicago.