When the pandemic broke out in March, Kelly Kearney, owner of Pacific Fine Food Catering in Alameda, California, initially thought that things could go back to normal after a few months. She bought the company in 2004 and built a business with loyal, reliable employees and long-standing customers. At 58, she had no plans to retire anytime soon, but she and her husband, who is 66, stepped back a little to enjoy the success they had achieved after many years of hard work . They recently bought an apartment in Italy with a view of the Riviera and stayed two weeks each quarter.
Then, like so many others, the crisis brought about great changes. With no events on offer, business fell 85%. She had to lay off most of her 17-strong workforce. Due to travel restrictions, she was unable to visit her favorite vacation spot.
“Now I work 350 days a year,” she said. Then her father died in May. Kearney said then she thought, “I can’t do this anymore. Maybe it’s time to back off.” She is currently selling the company to her employees at a significant discount.
The pandemic has hit small businesses hard, including countless boomer-owned companies. According to a survey by the Center for New Middle Classes, the number of baby boomers who said they were self-employed or owning their own fell 25% in the second quarter. In addition, the largest increases in unemployment were in non-prime households or households with a credit rating below 700 between the ages of 55 and 64.
That impact could have a significant impact on the economy as a whole, considering that baby boomers born between 1946 and 1964 own nearly half of the privately owned and employed companies in the United States, according to Project Equity. That’s 2.34 million companies with 24.7 million employees and sales of $ 5.1 trillion, according to the US Census Bureau.
“Not to make it too small, but the sound of sucking you hear is boomers being pushed out of the economy during the pandemic,” said Jonathan Walker, executive director of the center for the new middle class.
Small businesses are a major engine of growth for the economy. The current success of Boomer-owned small businesses could hold back growth and recovery. Despite the importance of small businesses to economic growth and health, research shows that entrepreneurship has declined for decades. According to the US Small Business Administration, less than 2% of millennials reported being self-employed, compared with 7.6% for Gen X and 8.3% for boomers.
“What we are losing is not just an engine of the economy – we are going to need these small businesses to grow out of the recession – but also wealth transfer,” said Walker.
Boomers see evaporating wealth
Much has been said about the expected $ 68 trillion wealth transfer as boomers hand their fortunes to the next generation. Now it seems that some of this wealth could evaporate in the crisis.
“People hear these numbers and think of the stock market or real estate, but a lot of it affects small and medium-sized family businesses,” said Andrew Sherman, partner at Seyfarth Shaw in Washington, DC
As businesses suffer and unemployment rises, savings decrease accordingly. The number of boomers reporting retirement or savings accounts has declined during the crisis. According to the Center for the New Middle Class, only 20% of nonprime boomers said they had retirement accounts, up from 36% a year ago. Even wealthier boomers saw a decline in savings. 38% of prime credit boomers said they had retirement accounts, up from 45% a year ago.
As the crisis drags on, companies are forced to make difficult decisions. Depending on the industry, boomer owners who may have been considering a sale prior to the pandemic have lost that window and will have to flip or otherwise alter their business model to keep the lights on.
“It happened out of the blue and is reflected in the data that some say they wished they sold last year,” said Bob House, president of BizBuySell.com, a marketplace for online businesses for sale.
Pat Roque, a New Jersey-based career counselor, said she sees many of her business owner clients choosing to cease operations and cut overheads. Some are now looking for jobs, while others who have accepted buyout packages are either returning to entrepreneurship or looking for a job that will allow them an income of five to seven years to retire comfortably.
“I find that the most common theme is people who think they should double down and embark on a Plan B to anticipate the bumpy farm road we are likely to face in the new year,” said Roque.
Vicki Riordan, 74, owner of Vicki’s Studio of Rhythm, a Pennsylvania dance studio specializing in tap dancing, has seen a drastic change in her business since the pandemic hit. The school went into complete silence of 500 students when quarantine orders came in. In the meantime, she continued to pay rent for her 5,000 square meter space. When the restrictions subsided, it reopened, but most of her students, with an average age of 57, were nervous about returning in person.
“Because of the distance, 16 people came at most at a time. I usually have 15 to 30, sometimes maybe 50 people in my studio,” she said.
Vicki Riordan, owner of Vickis Studio of Rhythm, a Pennsylvanian dance studio, had to turn her business during the pandemic.
Riordan has also offered online courses and is preparing for a larger national launch streamed from her studio. But then the lease ended and the landlord didn’t want to extend it. She now wants to offer live classes in different locations – in restaurants or event rooms – while expanding online at the same time.
The crisis has not only burdened us financially but also emotionally. While many have asked about retirement, Riordan says she isn’t ready. “My heart is broken because I don’t see my knockers weekly and my feet don’t make a sound. I’m not ready to let go. I just love what I do.”
Other owners are planning exit plans
Some believe the crisis will serve as a wake-up call for business owners, especially boomers, to rethink their exit plan.
“Just like the last recession, the crisis is a reminder to people that they need a plan and that there are events that happen every ten years,” House said.
Sherman expects a “very significant increase” in sales of small and medium-sized family businesses in the next 18 to 24 months. While M&A activity came to an abrupt halt earlier this year due to uncertainty, it has become vengeful again, thanks in part to low interest rates. The expectation that capital gains taxes could rise, especially if there is a change in administration, also drives urgency.
According to a recent report from BizBuySell, transactions for sale in September were only 5% lower than last year. This is a significant increase from April, when transactions were down 51% year over year. Much of the traction seems to be due to buyer confidence. BizBuySell’s Small Business Confidence Study found that 57% of shoppers believe they can buy a business for a better price than last year, compared with 17% last year.
“It’s a bad time to have a business, but a good time to buy. Things are slow and cheap,” said Kearney of Pacific Fine Food. As Kearney prepares to sell her business to her employees, she’s also working on training employees in marketing and maximizing margins by making the most of seasonal produce. That was something that was difficult when the business was busy.
Mike Goldman, 60, owner of a white label furniture manufacturing company in High Point, North Carolina, said the downturn had given him an opportunity to organize and implement new efficiencies. Business stalled earlier this year when everything shut down, first in China and then in the US. Since then, the business has exploded in a boom in furniture sales. Goldman said his biggest challenge right now is hiring and retaining people.
“That didn’t make me look for an exit strategy,” he said of the crisis. Goldman’s son joined the business nine months ago. As he passed the business on to him, “would be every parent’s wish. I’m not sure I want him to be in this business,” he said of the difficulties in the industry.
“I’ve been here before,” said Goldman. It almost stopped during the last financial crisis, but it could change. “I have a lot of emotional investment. It’s not just a financial investment. My goal is to keep it going,” he said.