WWhen you hear “startup,” you might think of the millions of entrepreneurs who have founded new businesses over the past few years. But these are mostly freelancers, contractors, and people with full-time jobs who can land a side gig. The real startup story is quietly happening elsewhere: Trillions of dollars in wealth are slowly being transferred to a new generation by boomers selling their businesses to those looking to build their own.
According to a new report from BizBuySell, a business research and brokerage site, the number of small businesses for sale has not only recovered to pre-pandemic levels, but is growing rapidly. And the market for would-be entrepreneurs is hot. Business owners who sold their companies in the second quarter of this year are receiving 20% higher prices than those who sold their businesses at the same time last year.
Boomers are selling at a breakneck pace, and they’re just getting started. This should not be a big surprise. According to the US Small Business Administration, more than half of the nation’s small business owners are over the age of 50, and approximately 21% of the US population was born before 1964. As of February 2024, according to one study, baby boomers owned about 51% of private businesses in the United States, which is about 3 million businesses worth $10 trillion.
“The reality is that 10,000 baby boomers retire every day and this is likely to be the most important element in driving the market forward,” says BizBuySell.
Age is not the only thing that drives this transfer of wealth. Economic, tax and political factors are also part of the equation.
Business sales are strong despite interest rates at 20-year highs. That’s because an increasing number of transactions are seller-financed, while other buyers have become more experienced and tech-savvy to better analyze their return on investment and make their numbers work as the economy the country as a whole has recovered from the pandemic. Many business brokers are predicting that demand will increase significantly when interest rates fall, which is expected sometime this year. According to BizBuySell, 24% of business buyers say they wait for interest rates to drop before making a purchase.
Capital gains rates – averaging 20% – are still historically low. Estate tax exemptions from passing down wealth to younger generations are at their highest levels in recent memory as a result of the Tax Cuts and Jobs Act of 2017. But all of these factors can change depending on the results of the November elections. Under these circumstances, many of my clients who want to minimize the tax bite of a business sale would have the incentive to make these transactions happen sooner rather than later.
So who will they sell to? Millennials, of course!
This is the generation generally considered to have been born between 1981 and 1996, and they are now in the middle of the average age of those who typically start a business, according to a Harvard Business Review report. Entrepreneurial dreams aside, the grim realities of inflation, corporate job insecurity and stock market volatility are driving many buyers to seek more stable destinations for their money, and owning a business provides that level of control. And – unlike their Gen Z counterparts, who are mostly still gaining experience in the business world – this generation has spent its time and has money to spend.
BizBuySell reports that 35% of today’s buyers identify as corporate refugees and want to get out of “corporate America for the independence of small business ownership.”
“I’m seeing more of a younger demographic looking for business ownership than in years past,” said Emmet Apolinario of Ohio Business Advisors. “The market is flooded with entrepreneurs interested in buying businesses regardless of interest rates.”
The other startup option isn’t Uber, Airbnb, or OpenAI. Real start-up opportunities are to buy and spin off an existing manufacturing or service operation. Many young entrepreneurs are realizing this. I expect many more to do the same over the next few years.
