This three part series looks at one of the most important, yet rarely spoken about, phenomena that is about to heavily impact our economy, namely the impact of the retiring ‘baby boomers’. Part one provides an overview of who they are, the important role that they play in our economy and issues they are facing now that they are approaching retirement age. Part two outlines options available to baby boomers and part three provides our thoughts on why we need to see this as an opportunity to revitalise many traditional businesses rather than as a problem.

If the retiring baby boomers and the new owners of their businesses take the right course of action then they and the wider economy can greatly benefit from  a change in ownership and in bringing many traditional businesses into the 21st century. In doing so this could revitalise many traditional industries and provide a great stimulus to the wider economy.

Who are the ‘baby boomers’?

The dilemma of what to do with companies established by retiring "Baby boomers" is one of the most critical, and yet rarely spoken about, issues facing many economies. Baby boomers were born in the post Second World War period between 1946 to 1964 and make up a significant portion of the world's population owning or controlling millions of businesses. They account for over millions of small businesses in the US employing more than 25 million people. Even in smaller economies like Australia the number of businesses owned by baby boomers is a staggering 400,000! Many of these baby boomers are soon to retire so they need to decide whether to sell their businesses or pass them onto a family successor. Whatever decision they take is likely to have a huge impact on themselves, their families, employees and the wider economy.

The Exit Planning Institute has estimated that more than 8 million private businesses will need to be sold or exited in the next 12 to 15 years in the US alone. This is a massive outflux of businesses into the M&A market and will likely lead to a reduction in the potential value of such businesses as the market will tip in favour of buyers. Consequently, it's crucial for the retiring baby boomers to take steps to maximise the value of their businesses, regardless of whether it passes to a family member or is sold to a third party.

Unfortunately, many of these baby boomers are in a ‘state of denial’ and refuse to acknowledge that they need to take some form of action for when they inevitably will retire. This means that many of them are unprepared personally in their retirement and professionally for their businesses once they eventually step down.

The reality of retiring

The reality is that many of the baby boomers have a strong emotional attachment to their businesses, with their ego or self-worth integrally being tied to it. It's understandable given that many of them have spent decades building up their businesses. This naturally means that they find it difficult to let go. Furthermore, in many cases they have an inherent mistrust of passing their business onto others, even when it may be in their best interests to do so. Coupled together with a wider fear of the unknown and of change means that they and their businesses face a period of considerable uncertainty.

According to data from the Family Firm Institute only 33% of baby boomers will successfully transfer their companies to the succeeding generation with the majority needing to find an outsider to buy them out or to make the difficult decision to close their business down. Even when a business can be passed down to another family member this is often only the beginning and far from the end of the process.

Lack of Transition Planning

A recent survey by Wilmington Trust found that of those baby boomers interviewed 58% of small business owners have no transition or succession plans in place.. This is never good for businesses and its employees and leaves them in a precarious position with considerable uncertainty as to their future.

This is extremely worrying as the impact on our economy could be considerable. Many of these companies form the cornerstone of many economies employing millions of people and provide essential products and services to our economies. Whilst these companies may not be hi-tech they play a crucial role in providing the products and services needed for the economy to operate.

Retiring baby boomers need to understand that transition planning is not an overnight solution. The transition is a process that can take many years and needs careful planning and risk mitigation efforts put in place. If the baby boomers cannot pass the business to a family member then there are other steps or approaches that they can take, which we will explore in part 2.

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Photo by Markus Winkler on Unsplash

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