When the pandemic hit in March, Kelly Kearney, owner of Pacific Fine Food Catering in Alameda, California, initially thought things might go back to normal after a couple of months. She bought the company in 2004 and built up a business with a loyal, dependable staff and long-time clients. At age 58, she wasn't intending to retire anytime soon, but she and her husband, who is 66, were starting to step back a little to enjoy the success they earned after many years of hard work. They recently bought an apartment in Italy, with a view of the Riviera, and would stay for two weeks every quarter.
Then, like for so many others, the crisis brought big changes. With no events to cater, business fell by 85%. She had to lay off most of her staff of 17. Travel restrictions meant she couldn't visit her favorite vacation spot.
"Now I'm working 350 days a year," she said. Then her father passed away in May. Kearney said that's when she thought, "I can't do this anymore. Maybe it's time to retire." She's currently selling the business to her employees at a steep discount.
The pandemic has hit small businesses hard, including countless boomer-owned businesses. According to a survey by the Center for New Middle Class, there was a 25% drop in the number of baby boomers who said they are self-employed or own their own business in the second quarter. In addition, the largest jump in unemployment has been in nonprime households, or those with credit ratings under 700, ages 55 to 64, the center found.
That impact could have significant repercussions for the economy at large considering that baby boomers, born between 1946 and 1964, own nearly half of privately-held businesses with employees in the U.S., according to Project Equity. That's 2.34 million businesses with 24.7 million employees and $5.1 trillion in sales, according to the U.S. Census Bureau.
"Not to put too small of a point on it, but that sound of sucking that you hear is boomers being pushed out of economy during the pandemic," said Jonathan Walker, executive director of the Center for the New Middle Class.
Small business is a significant growth engine for the economy; the current hit to boomer-owned small businesses could curb 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 U.S. 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're losing is not just engine of the economy – we'll need those small businesses to grow out of the recession – but the wealth transfer," Walker said.
Much has been said of the expected $68 trillion wealth transfer as boomers leave their wealth to the next generation. Now it appears some of that wealth may evaporate amid the crisis.
"People hear these numbers and think of the stock market or real estate, but a large chunk of that is around small- and mid-sized family businesses," said Andrew Sherman, partner at Seyfarth Shaw in Washington, D.C.
With businesses suffering and unemployment up, savings are falling accordingly. The number of boomers who report having retirement or savings accounts has declined in the crisis. According to the Center for the New Middle class, only 20% of nonprime boomers said they had retirement accounts, down from 36% a year ago. Even wealthier boomers saw savings drop, with 38% of boomers with prime credit ratings saying they have retirement accounts, down from 45% a year ago.
As the crisis drags on, businesses are forced to make tough decisions. Depending on the industry, boomer owners who might have considered selling before the pandemic have now lost that window and need to pivot or otherwise change their business model to keep the lights on.
"This happened out of the blue and it reflects in the data that some say they wish they had sold last year," said Bob House, president of BizBuySell.com, an online business for sale marketplace.
Pat Roque, a career coach based in New Jersey, said she's seeing many of her business owner clients opting to wind down operations and reduce overhead. Some are now looking for jobs while others who took buyout packages are now either revisiting entrepreneurship or looking for a job that will give them five to seven years of income to retire comfortably.
"I'm finding that the most common theme is folks thinking they should 'double down' and have a plan B under way to anticipate the bumpy economic road we may likely face heading into the new year," Roque said.
Vicki Riordan, 74, owner of Vicki's Studio of Rhythm, a Pennsylvania dance studio specializing in tap dance, has seen a drastic change to her business since the pandemic hit. The school went from 500 students to completely quiet as quarantine orders came into place. Meanwhile, she continued paying rent on her 5,000 square foot space. As restrictions eased, she reopened but most of her students, with an average age of 57, were nervous about coming back in person.
"We only had 16 people at most come at a time because of the spacing. Normally, I have anywhere from 15 to 30, maybe 50 people sometimes in my studio," she said.
Riordan has also been offering online classes and preparing for a larger national launch streaming from her studio. But then the lease ended and the landlord didn't want to renew. She's now looking to offer live classes at various locations – restaurants or performance spaces – while also expanding online.
The crisis has been taxing not only financially but emotionally. While many have been asking about retirement, Riordan says she's not ready. "My heart's broken because I don't see my tappers weekly and my feet aren't making noise. I'm not ready to let it go. I just love what I do."
Some believe the crisis will serve as a wake-up call, forcing business owners, especially boomers, to think about their exit plan.
"Just like last recession, the crisis reminds people that they need a plan and that there are events that happen every decade," said House.
Sherman said he expects to see "a very significant likely uptick" in small- and mid-sized family business sales in the next 18 to 24 months. While M&A activity came to an abrupt stop earlier this year amid uncertainty, it's come back with a vengeance thanks in part to record low interest rates. Anticipation that capital gains taxes could increase, especially if there is a change in administration, is also driving some of the urgency.
According to a recent report by BizBuySell, business for sale transactions were down just 5% in September compared to a year ago. That's up significantly from April when transactions plummeted 51% year over year. Much of the traction seems to come from buyer confidence. BizBuySell's Small Business Confidence study found that 57% of buyers believe they can buy a business for a better value 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 Pacific Fine Food's Kearney. As Kearney prepares to sell her business to her employees, she is also working on training staff on marketing and maximizing margins by making the most of seasonal produce. That's something that was hard when business was busy.
Mike Goldman, 60, who owns a white label furniture manufacturing business in High Point, North Carolina, said the downturn gave him some opportunity to organize and introduce new efficiencies. Business ground to a halt early in the year when everything shut down, first in China and then the U.S. But since then, business has exploded amid a boom in furniture sales. Goldman said his biggest challenge right now is hiring and keeping people.
"This has not made me look for an exit strategy," he said of the crisis. Goldman's son joined the business nine months ago. While passing on the business to him "would be every parent's wish. I'm not sure I'd want him to be in this business," he said about the difficulties in the industry.
"I've been here before," said Goldman. During the last financial crisis, he came close to calling it quits but was able to turn things around. "I have a lot of emotional investment. It's not just financial investment. It's my objective to keep it running," he said.