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Small Business Owners Prepare for Baby Boomer Effect

If you are a regular reader of The Fischer Report, you are well aware of the dramatic effect the Baby Boomer generation is having on the health care system. As Boomers who work in the health care industry retire, the workforce is struggling to keep up with the increasing demand those same Baby Boomers are putting on the system.

The same thing is happening to small business owners.  As owners reach retirement age they will find it increasingly difficult to sell their business because there is a smaller pool of buyers.  It is a problem illustrated in a recent survey by the University of UConn School of Business.

The survey studied the shrinking number of potential small business buyers compared to the number of retiring business owners. It showed a dramatic decrease in the potential buyers that could put the squeeze on Boomers who are trying to profit from a life’s work.

Looking ahead between 2015 and 2025, we estimate that over 19,000 business owners will want to retire, with fewer than 23,000 new owners to take their places. Put differently, the ratio of willing buyers to willing sellers will fall from 1.6 in recent years to 1.2 in the years to come.

The report goes on to illustrate the effects this could have on retiring Baby Boomer business owners that could put a serious damper on retirement plans.

This will likely have one of two effects: it will encourage the prospective sellers to work longer, or it will force those sellers to accept lower sale prices for their companies. At times, it will have both effects. Prospective sellers may work longer than they want hoping for a better price that never comes and ultimately sell at a discount anyway.

If you think this is a problem for Connecticut think again.  The report compared the Baby Boomer dilemma in the Nutmeg State to the nation and found the effect intensifies.

Nationally, we are on the verge of an even more pronounced change in the ratio of older business owners looking to sell vs. younger adults that might consider buying businesses. As shown in Exhibit 6, this ratio ranged from 1.34 to 2.05 from 1950 through 2000. This means that, in the second half of the 20th century, there were substantially more prospective “buyers” than “sellers.” It is a different story in the 21st century, as this ratio is projected to be just slightly over 1:1 from 2015 onward.

Yet another illustration of how the Baby Boomer generation will challenge our systems as our country prepares to help the largest generation enjoy their golden years.  We must innovate to meet demand and control cost.  Failing to do so could be a greater threat to our national success then any other influence.