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Why are boomer business owners hanging on to their businesses long past retirement age?

Experts suggest many owners find meaning in ownership and aren’t in a hurry to quit, while some can’t afford it

January 13, 2023


Tu-Uyen Tran Senior Writer
Older business owner running a meeting
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Article Highlights

  • Census data show growing numbers of self-employed people working past retirement age as baby boomers age
  • Experts involved in sales of businesses say decision to sell is usually based not on age but on emotional factors or personal circumstances, such as ill health
  • Waiting too long to sell can hurt owners financially, experts say, especially if circumstances force the sale when timing isn’t right
Why are boomer business owners hanging on to their businesses long past retirement age?

Keith Tokerud turned 70 in November and has no immediate plans to retire from the law office he started with his father-in-law more than 30 years ago in Great Falls, Montana.

He said he enjoys helping clients with estate planning, working with CPAs and other professionals, and watching his staff grow in their roles. “I get a lot of meaning out of this, and I just don’t see hanging it up,” he said. “I don’t look forward to sitting home in front of the TV and slugging down beer and looking at the next football game.”

Many of his clients, including other business owners, feel the same way. Even as they plan for their eventual retirement and sale of their business, most find meaning in showing up to work every day. Often, he said, they only come to him because a health scare or other event makes them realize they might not have a choice of how they exit their business.

That emotional attachment owners have with their business may be one big reason why the long-predicted tsunami of business sales by retiring baby boomers has yet to materialize here in the Ninth District and around the country, despite such a large group reaching retirement age. Even strong economic conditions driving up sales prices nationally for many kinds of businesses in the last couple of years have not led to a big uptick in sales.

“These business owners tend to be very active. They work. And a lot of their identity and reason to get up in the morning is tied to this business,” said Andy Kocemba, president and CEO of Calhoun Companies, a Twin Cities–based business brokerage. “Just because they turned 65, or you name the age, doesn’t mean they’re going to be rushing to sell.”

The fact that people live longer and in better health today means many can put off the difficult decisions for a while.

Aging owners

Retirement is the top reason most business owners give for putting their businesses on the market, and that’s been true for decades, according to national industry surveys and anecdotes from Ninth District experts involved in sales of businesses. That may be why many expected a surge in sales of businesses as boomers reached retirement age. The oldest boomers would’ve reached retirement age in 2013.

While the actual number of businesses sold for retirement is elusive—industry groups and government agencies do not track even the total number sold—what’s clear is the number and share of owners who are old enough to retire continue to rise (Figures 1 and 2).

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The Social Security Administration defines full retirement age as 67 years. Today, 14 percent of self-employed people in the United States have reached 67, according to U.S. Census Bureau survey data. A decade ago, that share was 9 percent. A similar trend can be seen in the Ninth District. “Self-employed” includes not just the traditional definition of business owners, but also farmers, ranchers, and independent contractors.

To be sure, the number of businesses sold for retirement has increased over time, but it’s been a very gradual process, according to industry experts. Because boomers are a large group, even if the share of individuals selling their businesses at retirement age shrinks, there could still be an increase in the number of sales overall.

“There’s certainly not been a large tsunami or wave like some people predict,” Kocemba said.

Most boomers are in no hurry to sell, according to Art Rosenberg, owner of Capital Commercial Realty Group in Fargo, North Dakota. Many like to work and are healthy enough to continue to work. “You know, 65 isn’t retirement range anymore. It’s 75.”

For a small but growing number, even that is not retirement age. Census data show the share of self-employed people who are 75 and older a decade ago was 3 percent nationwide. Today, it’s about 4 percent. Again, a similar trend can be seen in the Ninth District.

Emotional decisions

For most business owners, the idea of selling their business is difficult to contemplate. Industry experts say owners often act as if they never want to retire and rarely make any long-term plans to do so.

For farmers and ranchers, there is also a question of family legacy. The land that they work might have been homesteaded by their grandparents.

According to an October survey of the U.S. market conducted by the International Business Brokers Association, around 80 percent of small business owners didn’t have an exit plan the year before they put their business on the market. Even among much larger, more sophisticated businesses—those valued at $5 million to $50 million—67 percent of owners didn’t have an exit plan. Given the lengthy due diligence required in a sale, that suggests most began their planning around the time they decided they wanted to sell instead of the years recommended by estate planners.

“This is selling your livelihood, something that you put your blood, sweat, and tears in to create something valuable,” said Adam DeBussy, senior marketing director for the digital marketplace BizBuySell. As part of his work, every quarter he surveys thousands of business owners who use the company website to sell their business. “It’s more of an emotional decision to sell,” he said.

For farmers and ranchers, there is also a question of family legacy. The land that they work might have been homesteaded by their grandparents, and, if they have children, they may wait to see if at least one will want to take over the farm or ranch, according to Stephen Wesolick, principal attorney at the Rapid City, South Dakota, law firm Aspen Legacy Planning.

Rather than contribute to a retirement fund, most business owners choose to reinvest in their business, meaning whatever they can sell their businesses for is what they’ll have to retire on.

Often, owners end up being forced to sell because of personal circumstances, such as disability of the owner or their spouse who requires care, industry experts say. Sometimes the sale occurs because the owner dies.

Owners may also sell because they’re overwhelmed and the passion for running their business has faded.

Scott Bushkie, managing partner at the business brokerage Cornerstone Business Services in Green Bay, Wisconsin, said that, since the start of the pandemic, he’s seen many owners sell because they lost their passion for running a business from COVID-19 impacts, difficulties hiring, supply chain disruptions, and now high inflation and fears of a recession. “They wake up one day and it’s usually not fun anymore.”

But it’s one thing to decide to sell and another to be able to do so.

Rather than contribute to a retirement fund, most business owners choose to reinvest in their business, meaning whatever they can sell their business for is what they’ll have to retire on. If owners don’t think they can retire in the way they had envisioned and if they have the ability to hang on to the business, they’ll do so to build up its value or wait for more favorable economic conditions.

“A lot of boomers do want to retire, but if inflation and interest affects their business value by a lot, they’ll just wait,” said Wesolick. “Unless they have cancer or some other urgent situation, they can sit on the business for another year or two.”

Still, these financial considerations are likely to have a significant effect on the business-for-sale market only when the economy is weak, not when it’s strong. Even in 2020 with a pandemic-stricken economy, a BizBuySell survey found that only about half of boomer owners whose businesses were in decline said they had changed their exit timeline in response.

The risks of waiting

For business owners who continue to work into what normally would be retirement years, the risks of not being able to sell their business for the optimal price rises; in fact, they may not be able to sell the business at all.

Simply put, time is often not on their side, according to industry experts.

Advanced age naturally increases the chance of a disabling illness or death. At some point, older owners will begin to lose their energy and vitality, making it difficult for them to continue to grow their business or adapt to changing markets. A business in decline is harder to sell. Having a narrower window of time also means that it’s more difficult for older owners to wait out economic downturns that damage the value of their business.

All of this is compounded by the lack of an exit plan.

Planning could take a few months for businesses that are well run, but many others require years of planning. According to Tokerud, that’s because many businesses aren’t built in a way that’s going to make a buyer confident. Accounting systems may be informal, understandable to the owner and employees but not to an outsider. Physical facilities may not be in the best shape. In his experience, it can take five to 10 years to fix those problems. Even those planning to sell to their children or key employees will have to train them to be new owners.

Wesolick said being forced to sell without having an exit plan can be disastrous. “If you’re in that situation, that business is either going to be purchased for minimal value—I mean rock bottom value—or it’s not going to be purchased at all. Maybe someone will take some of the assets, and it’s a fire sale.”

Advance age naturally increases the chance of a disabling illness or death. At some point, older owners will begin to lose their energy and vitality, making it difficult for them to continue to grow their businesses.

The owner of a Twin Cities business said she’s finding that out the hard way after her business partner died unexpectedly a few years ago without a plan for anyone to replace him (The Minneapolis Fed is not identifying her or the business to avoid hurting her chances of a sale). When she tried to sell the business to retire, she said she found it difficult because most buyers wanted to be investors, not managers involved in running the business. But without her, she said, there would be no one who could run the business.

Now, she said, she might just have to shut down and split the assets with her partner’s heirs. Luckily for her, there are still enough cash assets to satisfy everyone involved, she said. Demand for her workers is strong, and she expects her rivals would hire them.

Economic uncertainty

Because decisions by owners to sell their business are often both personal and financial, it’s difficult to predict how changing market conditions will affect those seeking to retire. Industry experts disagree on whether there’s been a slowdown in sales.

Interest rates are much higher now—the bank prime loan rate as of mid-January was 7.5 percent, more than double what it was in March—and that can decrease what buyers are willing to pay. That’s because buyers are essentially buying the cash flow of a business and higher loan payments take away from that cash flow, according to Steve Bragg, a Calhoun Companies business broker based on Minnesota’s North Shore.

At the same time, there is growing unease among buyers that the higher rates will lead to a recession in 2023, he said. “Buyers are real sketchy about getting into a business when the outlook is not good.”

Of those two factors, he said, it’s more likely that recession fears are why his phones have gone quiet; he calculated valuations for some clients recently and found the higher interest rates did not make a big difference.

At the same time, there is growing unease among buyers that the higher rates will lead to a recession in 2023.

Bushkie, who sells businesses that are large enough to attract private equity firms, said he hasn’t seen a slowdown. Boomer owners, exhausted from the economic roller coaster, still want to sell even if higher rates means lower prices, he said. And private equity, whose only purpose is to buy businesses, still want to buy, he said.

Kocemba said most owners hang on to a business until they can’t hang on anymore, and suddenly they decide they’re done. So it’s true that higher rates can make it harder for sellers and buyers to come to an agreement, but there are other motivations that trump economics. “There’s so many other motivating factors as to why somebody buys or sells a business that they’ll figure out how to make it work.”

Tu-Uyen Tran
Senior Writer

Tu-Uyen Tran is the senior writer in the Minneapolis Fed’s Public Affairs department. He specializes in deeply reported, data-driven articles. Before joining the Bank in 2018, Tu-Uyen was an editor and reporter in Fargo, Grand Forks, and Seattle.