How many baby boomers are there?
There are about 78 million baby boomers in the United States.
A portion of the baby boomers are business owners and will eventually need to transition the ownership of their business. We have discussed how many business owners, if they took the time to identify their estate and succession planning objectives and considered all of their alternatives, would find an ESOP to be a great fit for their situation.
Just how many baby boomer business owners are there?
As I stated in a prior post, I have not been able to locate a single reliable source document that provides a reliable answer to this question. Lets take a closer look at some of the numbers:
- According to The Small Business Economy: A Report to the President 2007 (page 5), there are 26.8 million small businesses (defined as a business with fewer than 500 employees) in the United States. Assuming 40% of these businesses are baby boomers that will need to transition their business in the next five to 20 years, the number would be 10.7 million companies. The number assuming 50% or 60% is 13.4 million or 16.1 million, respectively.
- According to the Number of Businesses by State (page 300), there were 6 million employer firms, 20 million nonemployers, and 16 million self-employed in 2005.
- According to the Characteristics of Self-Employed Individuals (page 320), 59% are currently age 45 or older (30% are age 55 or older, and 9% are age 65 or older) in 2005.
- According to the Statistics about Business Size (including Small Business) from the U.S. Census Bureau, there were 25.4 million firms (5.9 million with payroll) in 2004.
I had previously used seven to 12 million as the estimated number of companies looking to transition the ownership of their company in the next five to 20 years in two previous posts. Because I do not want to overstate the number, I will now refer to the number as more than 5 million.
How many of these companies are truly ESOP candidates?
Coming up with an accurate estimate of this number is even more challenging than determining the number of baby boomer business owners looking to transition the ownership of their company. Some thoughts on ESOPs and More thoughts on ESOP Trusts provides an insightful perspective of ESOPs from someone that does not specialize in ESOPs. Corey Rosen posted his comments on the first blog post and the second blog post expands on an email discussion between the two:
Corey was telling me that the NCEO thinks there are about 150,000 companies that could economically qualify as an ESOP company. I would probably put that number at around 300,000 which corresponds with the number of private businesses that are in the middle market. (Sales between $5MM and $1BB)
Is the potential ESOP universe 150,000 or 300,000 or a different number? That is a discussion that will need to be continued. One thing that is known is that the potential ESOP universe is much greater than 9,774 (the estimated number of ESOPs in 2007), which brings us back to the question of Why the Number of ESOPs is not Growing at a Faster Rate.
If you have seen or calculated more specific numbers to any of the numbers discussed above, please let me know.