America is poised for a great ownership transfer, fundamentally reshaping the business landscape. A report by the McKinsey Institute for Economic Mobility issued at the end of February says that, as millions of baby boomers retire, the US will likely see an unprecedented wave of small-business ownership transitions. This “great ownership transfer” brings many challenges, but also many opportunities for the next generation and their communities.

The Great Ownership Transfer at a Glance

Even the youngest baby boomers are approaching retirement age. The businesses they’ve spent their lives building, often family businesses, have strengthened our economy and brought their owners financial stability. Now, as those owners get ready to set down their responsibilities and enjoy their well-earned retirement, a new generation of business owners will need to take the reins.

Data shows that by 2035, about 6 million small- and medium-sized businesses currently owned by baby boomers will need to be transferred to new owners as their original owners retire. About one million of these are viable candidates for sale, representing nearly $5 trillion in enterprise value. Experts estimate that about 12 million jobs depend on them.

There is so much riding on successful business transfers. However, today in America, most exits end in business closure instead of transfer. That’s because the pathways for business succession can be extremely challenging and costly to navigate. Many existing owners find it hard to transfer their business to a new owner. And many entrepreneurs find it easier to start a new business for the first time than to acquire one.

What Is Business Succession Planning?

Business transfers are more likely to be successful when their owners engage in something called business succession planning. This process (sometimes also called a buy-sell agreement, transition plan, or business continuity plan) creates a plan of action outlining what should happen to the business when the initial baby boomer business owner retires or is unable to continue running the business as it is today.

Succession plans are kind of like a prenup for your business. They envision the future and ensure that your business continues to run smoothly. To do so, they identify the right people to run things going forward.

A business succession plan may involve many things, including:

• Identifying key roles and selecting future leaders
• Outlining how ownership will be transferred, including setting a timetable for when company control shifts to your successor
• Training employees through a formal training program

• Creating a financial plan for the business, including managing cash flow
• Providing guidance on day-to-day operations
• Providing competitive analysis, marketing, and sales strategy

You Can Create a Business Succession Plan Online, But It’s Risky

It’s possible to find many business plan templates online, including those from the U.S. Small Business Administration. However, the best way to create an effective business plan is most often to work with a experienced professionals, including a business and commercial lawyer, a certified public accountant (CPA), or a certified exit planning advisor. The professionals you hire, acting as trusted providers, can get to know your business, spot any potential pitfalls, or guide you through the planning process. They’ll help you avoid litigation, minimize tax burdens, and ensure accurate valuation of your business.

In choosing to do your own planning with online forms rather than a lawyer or financial professional, you can save money. But for those who view their business as a lasting legacy, or have higher income and employees, hiring professionals may be well worth the price.

Small Businesses Are a Cornerstone of the Economy — So Let’s Protect Them

In the United States, 99% of all companies are small businesses. Together, they employ almost half of the US workforce and generate 35% of business revenue. So, the McKinsey report comes with a warning. Many communities could be negatively impacted if businesses close rather than transfer ownership.

This is especially true in rural areas where small businesses account for more than half of total employment. If retiring small business owners fail to do proper exit planning, small town storefronts and agricultural businesses could wind up closed with nobody from the next generation taking them on. The impacted communities may never be the same.

The McKinsey report also reminds us that “ownership of a small business has long been one of the most powerful pathways to wealth creation in the United States. But, only 28% of the ownership transfer value from baby boomer-owned businesses is likely to go to women and Black and Latino individuals combined. If boomers choose their successors wisely, or if women and minorities think strategically about their opportunities now, those business transfers could be a powerful near-term lever to narrow geographic, gender, and race-based disparities in wealth.

Is Your Business Prepared?

Failed business ownership transitions do more than result in closures — they have the potential to change communities by taking away jobs and eroding wealth-building opportunities. In many places, especially in small towns and agricultural areas, ownership continuity means that businesses built by one generation will be passed to the next, and that the community will continue to become more vibrant over time.

But many business owners don’t have a succession plan yet. Generally, they cite many reasons for this, from not being able to identify a likely successor, to not knowing where to start and feeling uncertainty about the future.

So here’s the key question: Are you prepared for the future? It’s important to think through your exit strategy — whether that’s planning for a blissful retirement that you’ve been looking forward to for years, or planning just in case something were to happen.

Don’t just leave the decision-making responsibilities up to your family members or others who are currently employed by your small business. Take the time now to make the right decisions that are best for you, for your business, for the next generation and for your community. Make a formal succession plan that protects everything you’ve built. It’s important work, and it’s worth it.

Related Resources

• Maximizing the Sale of Your Business (FindLaw's Learn About the Law)
• The Merchant Cash Advance Trap for Small Businesses (FindLaw's Law and Daily Life)
• Penny Lame: How Should Businesses Handle the Elimination of the One-Cent-Coin? (FindLaw's Law and Daily Life)