Topline
Six million small and midsize American businesses are set to be involved in a “great ownership transfer” by 2035 as baby boomers retire, with about 1 million of them expected to be sold in transactions cumulatively worth $5 trillion, according to a report by the McKinsey Institute for Economic Mobility published Thursday.
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Key Facts
Small businesses make up 99% of all companies in the U.S., employing over 60 million workers, and generating about 35% of all business revenue, the report says.
McKinsey calls the coming transfer “a new era of business stewardship,” warning that “without intentional 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 firms will shut down instead of sell.
If these transitions succeed at scale, they could preserve up to 12 million jobs and sustain roughly $250 billion in annual local spending power, according to the report.
McKinsey cautions if they fail, rural areas, where small businesses account for more than half of total employment, face great risks to economic mobility.
Only about 28% of the ownership transfer value is expected to go to women and Black and Latino individuals combined, the report says.
Crucial Quote
The report stresses this is not just a financial event but a structural test of how well the U.S. supports financing and first-time buyers, arguing that “ownership of a small business has long been one of the most powerful pathways to wealth creation in the United States.”
Big Number
$2.3 trillion. That’s the cumulative wealth concentrated among business owners nearing retirement, according to McKinsey.
Contra
Younger generations might fill the small-business gap with new ventures. According to the Global Entrepreneurship Monitor, young entrepreneurs ages 18-24 in the U.S. are starting businesses at higher rates, with nearly one-fourth (24%) of those polled in a 2023 study identifying as business owners.
Surprising Fact
In 2022, the mean wealth of elderly households (age 65 and over) was more than twice that of the non-elderly, according to the National Bureau of Economic Research. Their homeownership rate was 16.9 percentage points higher.
Key Background
More than half of U.S. small-business owners are over age 55 today, a share that has increased 30% since the early 2000s, and one in four are 65 or older, according to the report. As a result, McKinsey estimates that annual small-business exits (including both sales and closures) could be as much as 42% above 2011 levels by 2035, reaching as many as 665,000 per year. This wave of retirements has long been referred to as the “Silver Tsunami,” a term used to describe the surge of aging business owners without succession plans. Advocacy group Project Equity has warned that, if boomers sell a large part of their businesses to larger companies, the transition might end up further concentrating wealth and resulting in layoffs.
