Shifting Tides

Ever heard of the Silver Tsunami? No? Don’t worry, you aren’t alone. The Silver Tsunami has nothing to do with water or coastlines. It represents the largest transfer of wealth ever before seen in the United States. There are about 12.3 MILLION Baby Boomer business owners in the United States. 10,000 of them are retiring every day on average, and most will retire within the next 5-10 years. You may be thinking to yourself, “That’s fine, there is nothing to worry about. This happens all the time with people retiring.”. The removal of this many people from the workforce is bound to lead to some changes and force a restructuring of certain economic functions.

Retiring owners have three options in front of them. They can close the doors, transfer ownership to someone, or sell via M&A. The problem with those three options is the rates of failure. Closing the doors is an obvious 100% failure. Ownership transfer, within the family, has a 70% failure rate with the first generation. Each subsequent generation has even higher failure rates. With M&A, the generally accepted rule is that it fails 50% of the time. Depending on the source of the information, it could be as high as 83%. If you’re in the position of buying companies, this is your playground. The sheer number of companies undergoing this type of transition creates a buyers’ market, driving down valuations.

1 in 6 employees are at risk due to the Silver Tsunami. Take a minute to think about that, think of your 6 closest friends. What if they suddenly were out of a job? How does that affect all the things they are involved with? At CIS, our recommendation is that you always have a plan. Watch what is going on at your company, and look for warning signs. If you are well prepared and recognize the situation, you have a chance to be part of the solution or move on your own terms.

Let’s put some real-world numbers into this. Take all the 2,318 manufacturing companies in the state of Arkansas (as of 2016). If 55% of those owners retire, that means 1,275 companies are affected. If they go the M&A route, 637 companies fail. If they undergo a generational transfer, 892 companies fail. Based off employment data from the Arkansas Economic Development Commission, this can result in 60,000 lost jobs and $2 billion in lost payroll tax to the state. Those numbers are staggering. Consider all the other industries in the state, and the total impact dwarfs these numbers. Now think about all the other 49 states and territories that comprise the economy. Scary right?

This phenomenon has the potential to forever change the gears of the US economy. That begs the question, why is no one talking about this? It is crucial to begin preparation as soon as possible to ensure a smooth transition. For some tips on how to get started, check out “4 Steps to Help Ensure Business Transition Success”.

4 Steps to Help Ensure Transitional Success

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