The Great Wealth Transfer Unveiled Understanding the Fate of 33.5 Million Small Businesses

Leslie Quinn
May 22
4 min read

Updated: Jun 9

In the coming years, the Great Wealth Transfer will transform our economy. As baby boomers enter retirement, we will witness a significant shift in wealth, particularly regarding small businesses. With about 33.5 million small to mid-size businesses operating in the United States, understanding what lies ahead for these enterprises is crucial.

In this post, we will analyze the statistics related to the longevity of these businesses, examine how many are transitioning to the next generation, and explore the unfortunate reality of those that may have to close.

The Landscape of Small to Mid-Size Businesses

Small to mid-size businesses (SMBs) play a vital role in the U.S. economy, providing jobs for millions and significantly influencing the Gross Domestic Product (GDP). According to the Small Business Administration (SBA), nearly 50% of all private sector jobs are created by SMBs.

Typically, SMBs are defined as companies with fewer than 500 employees. Understanding their age is key to evaluating their capacity to endure through the Great Wealth Transfer.

Small Business Age Breakdown

The age of small businesses informs us about their stability and prospects for ownership transition during this transformative period.

Less than 1 year: About 10% are recent startups, reflecting the challenges of entering competitive markets.
1-5 years: Approximately 40% fall into this range, crucial years for growth or potential closure.
5-10 years: Nearly 25% have made it to this milestone, indicating they have weathered significant challenges.
10-20 years: Around 15% have been in operation for more than a decade, often enjoying established customer relationships.
Over 20 years: Roughly 10% have lasted two decades or more, frequently characterized as family-owned businesses rich in tradition.

While new businesses can drive innovation, older companies typically benefit from their established reputation and experience.

The Fate of Small Businesses in the Great Wealth Transfer

As many business owners approach retirement, we ask how many will successfully transfer ownership. This question is critical for the future of small businesses.

Business Transfer Statistics

A core issue arises around the successful transition of small businesses to the next generation. Recent studies have uncovered some telling statistics:

Only 30% of family-owned businesses make it to the second generation, and only 12% persist to the third generation.

These numbers are sobering. They indicate that many owners lack succession plans, presenting risks not only for individual businesses but for the economy overall.

Factors Influencing Business Continuity

Understanding the challenges that can derail a successful transition is essential. Several factors play a role:

Lack of Succession Planning: Many owners do not prepare for ownership transfer, leading to sudden closures.
Financial Constraints: Without sufficient funds, maintaining stability during the transition can be challenging.
Market Dynamics: Businesses with solid market presence attract buyers, while struggling companies may face closure.
Personal Preparedness: The next generation's willingness and ability to take on management roles are crucial. Many family members may lack the interest or skills.
Regulatory and Taxation Issues: Complicated tax laws can pose significant challenges during transitions.

Addressing these issues can help prevent business closures as many shop owners retire.

The Impact of the Great Wealth Transfer on the Economy

The Great Wealth Transfer has significant implications beyond just business ownership.

Job Losses and Market Changes

As businesses transfer or shut down, the labor market could experience serious disruptions. Current estimates indicate that:

Up to 70% of business owners from the baby boomer generation plan to exit their businesses in the next decade.
This shift could lead to a potential loss of 5.9 million jobs, posing threats to the current job market.

These job losses could aggravate existing economic challenges, especially as we recover from the recent pandemic.

Opportunities for New Entrepreneurs

On a brighter note, the Great Wealth Transfer can create new opportunities for aspiring entrepreneurs. When older owners retire or close, openings arise:

Acquisition of Existing Businesses: Younger entrepreneurs may find lower valuations on established businesses, especially when owners are eager to sell.
New Ventures in Emerging Industries: The transition phase often spurs innovation, allowing startups to fill gaps left by closures.

Encouraging Resilience

To lessen the adverse effects of business closures, stakeholders can foster resilience in small businesses:

Education and Resources: Offering resources on succession planning and financial management is crucial to ensure continuity.
Community Support Initiatives: Local governments, chambers of commerce, and community organizations can create support networks, mentoring, and collaborations for businesses.
Access to Capital: Financial institutions can engage with transitioning businesses by providing customized financial solutions that support both exiting owners and new leadership.

Looking Ahead: The Future for Small Businesses

The Great Wealth Transfer offers a mix of challenges and opportunities for the 33.5 million small to mid-size businesses in the U.S. As we approach this pivotal change, it is essential to focus on the longevity of these businesses and the ownership transition process.

With diligent planning, education, and community support, many companies may not only endure but also thrive in this shifting landscape. Our emphasis should remain on fostering resilience and empowering the next generation of entrepreneurs—a critical move for a robust economic future.

As we navigate this transformative time, both current business owners and potential successors must familiarize themselves with the concepts surrounding the Great Wealth Transfer. Taking proactive steps can help ensure economic stability and a more prosperous future for all.