What is legacy?
When used as a noun, it can refer to something — often money or property — passed down from one generation to the next. As an adjective, a legacy (system) refers to an outdated computer system that’s being used but is difficult to replace because it still meets the needs it was originally designed for but doesn’t allow for growth.
Depending on the context, legacy can have positive or negative connotations: something to benefit from or be burdened by; an advantage or a hindrance to growth and progress.
When we imagine the kind of legacy we want to leave, we’re likely thinking in terms of positive impact — on our families, our communities, maybe even the world. We’re also likely thinking about our self-image and reputation, on some level. How do we want people to talk about us after we’re gone? Will they talk about us at all?
For business owners, legacy is a pretty big deal. Maybe it looks like creating a business with enough staying power to endure through multiple family generations. Maybe it’s starting something from nothing and growing it to the point of significant value. It could simply mean living a fulfilling life as an entrepreneur and having the means to retire comfortably.
For baby boomer business owners, legacy is a huge deal. Up until millennials came on the scene, baby boomers were unparalleled in their ability to spur social and economic growth and development. Collectively they’re known for being entrepreneurs and go-getters, and many have accumulated significant wealth throughout their careers.
The Impact of Business Transition Planning
In the United States currently, small and medium-sized businesses have an estimated value of $25.9 trillion, and baby boomers represent at least 50 percent of these privately held businesses. That’s approximately 3.5 million boomer-owned/operated businesses in the US, responsible for employing an estimated 72,000,000 full-time workers.
If you’ve heard the term “silver tsunami,” you’re likely aware that the mass exodus of baby boomer owners leaving the workforce within the next decade will have a significant impact on subsequent generations. But like the term legacy itself, the nature of that impact is still undetermined. It could be positive or negative, prosperous or disruptive.
As it stands, roughly 2.77 million baby boomer business owners are trying to figure out what to do with their businesses by 2027. Findings from the Exit Planning Institute’s (EPI) State of Owner Readiness surveys indicate only three out of 10 owners have a comprehensive business transition plan even though 75-95 percent of their net worth is tied up in their business. This means at least $13 trillion in personal, highly community-oriented wealth is at risk that could help fund private and public economic development initiatives.
It’s estimated that the retention and expansion of businesses generates 80 percent of economic activity for a community. Accounting for just over 50 percent of business owners, there is no question baby boomers drive local economies. If their businesses fail to transition, the economic disruption to communities across North America could be catastrophic.
Transition is a Shared Responsibility
But despite this impending threat, we are a long way from saying all hope is lost. In fact, with the right business transition planning and collaborative action, we can effectively address this “burning platform” and change the story.
The onus to educate and provide business owners with resources doesn’t fall on any one individual. Rather, ensuring baby boomer business owners are adequately prepared to exit is a collective responsibility shared by individual owners, their trusted teams and advisors, and the communities and cities they belong to. The following are ways each successive level of community can get involved.
Owners often underestimate just how much of their identity is tied to owning a business so when the time comes to retire. Many report regretting their decision to exit because they feel they’ve lost their purpose. Reflect on what is important now and in the future. Spend time thinking about who you want to be after your business and consider what you might need, financially or otherwise, to make it happen.
Recognize that a transition plan is critical for all owners, at every stage of the business (not just those on the cusp of retirement), and then seek professional advice. Not only does having a plan increase the overall value of a business, but it also helps owners flesh out that vision of what they want — for themselves and their business — and safeguards it against the unexpected (think illness or death, economic instability, or an offer to purchase).
Advisors and Team Members
We often don’t know what we don’t know. A lack of information and resources is sometimes what holds business owners back from transition planning. Only about a third of owners report knowing all their business transition options and another third are “unsure” of what they are, according to the EPI Owner Readiness surveys.
Advisors should commit to the ongoing process of educating themselves on exit and business transition planning, so they are adequately prepared to approach new and existing owner clients about how and why it matters to them, their families and their business. Pursuing Certified Exit Planning Advisor (CEPA) and Certified Exit Planner (CExP) designations are a great way to begin this learning process.
Acknowledge the risk that failed baby boomer business transitions pose to local communities and reframe the problem as a collective rather than individual one falling exclusively on owners. Identify the number of baby boomer-owned businesses at risk in your community, then work to bring together various community stakeholders with resources enough to help enable the implementation of a solution. Most importantly, engage baby boomer owners at scale to provide information and resources about the risk transition failure poses to everyone.
Leaving a legacy is fulfilling on an individual level but its worth is measured by how it impacts the communities we leave behind. For better or worse, baby boomer business owners have enormous economic influence on their local communities, so the question isn’t if their exit will have an impact, it’s how.
With dedication and collective action, baby boomer business transitions have the potential to mitigate years of future economic downturn and set successor generations on a path to success and prosperity.
For more information about how to address the business continuity risks present in your community, click here.