Topline
Six million U.S. small and medium-sized businesses will be involved in a “major ownership transition” by 2035 as baby boomers retire. About 1 million of them are expected to be sold in transactions with a cumulative value of $5 trillion, the figures said. a report by the McKinsey Institute for Economic Mobility, published Thursday.
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Key facts
Small businesses make up 99% of all businesses in the U.S., employ more than 60 million workers and generate about 35% of all business revenues, the report said.
McKinsey calls the coming transfer “a new era of corporate stewardship” and warns that “without deliberate action, many viable small businesses may close rather than transfer ownership.”
It notes that a significant share of owners report having no formal succession plan, increasing the likelihood that otherwise healthy businesses will close rather than sell.
If successful at scale, these transitions could preserve up to 12 million jobs and around $250 billion in local purchasing power annually, according to the report.
McKinsey warns that if they fail, rural areas, where small businesses account for more than half of total employment, face major risks to economic mobility.
Only about 28% of the value of property transfers is expected to go to women and Black and Latino individuals combined, the report said.
Crucial quote
The report emphasizes that this is not just a financial event, but a structural test of how well the US supports financing and startups, arguing that “small business ownership has long been one of the most powerful ways to create wealth in the United States.”
Big number
$2.3 trillion. That’s the cumulative wealth concentrated among entrepreneurs nearing retirement, according to McKinsey.
In return for
Younger generations could fill the gap between small businesses with new ventures. According to the Global Entrepreneur MonitorIn the US, young entrepreneurs between the ages of 18 and 24 are starting businesses at higher rates, with nearly a quarter (24%) of respondents in a 2023 survey identifying as business owners.
Surprising fact
In 2022, the average wealth of older households (65 years and older) was more than twice as large as that of non-elderly people, the report said. National Bureau of Economic Research. Their home ownership was 16.9 percentage points higher.
Important background
More than half of U.S. small business owners today are over 55, a share that has risen 30% since the early 2000s, and one in four is 65 or older, according to the report. As a result, McKinsey estimates that annual small business outflows (including both sales and closures) could be as much as 42% above 2011 levels by 2035, to as much as 665,000 per year. This wave of retirements has long been called the “Silver Tsunami,” a term used to describe the wave of aging entrepreneurs without succession plans. Interest group Project Capability has warned that if boomers sell off much of their holdings to larger companies, the transition could lead to further concentration of wealth and layoffs.
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