How Small Businesses Can Scale Through Boomer-Era Acquisitions

Retiring Boomers Could Create Opportunities

A recent research report from consulting giant McKinsey & Co. warns that small- to medium-sized businesses (SMBs) in the U.S. may face a crisis of ownership over the next decade, which could prompt small businesses to merge or acquire similar businesses. The research report concludes that by 2035, about 6 million small- to medium-size businesses (SMBs) will face ownership transitions as baby boomers retire. More than one million firms are viable candidates for sale, representing up to $5 trillion in enterprise value.

Source: McKinsey Institute for Economic Mobility

This could create valuable opportunities for existing small businesses. Not every small business will sunset or be inherited by the next generation – many of them could become targets of acquisition by existing business owners, especially if those businesses are lucrative.

Another reason that interest in M&A activity could rise in coming years is inflation. Current geo-political conflicts in the Middle East have caused gas prices to skyrocket recently, and year-over-year overall inflation (as measured by the Consumer Price Index) rose to 3.3% in March 2026 from just 2.7% in November 2025. Rising inflation combined with the Fed pausing its rate cuts from the end of 2025 has caused a cash flow drag for many small businesses in the U.S., making the possibility of M&A activity as a feasible way to grow.

Why Consider Buying?

Small business owners seeking to merge with or acquire another business may want to first ask themselves a very simple question: why engage in a merger or acquisition? This may sound like an obvious question, but the answers may be more complex than people think. Some of the reasons are:

• Reduced Risk & Quick Cash Flow: Existing businesses have already navigated initial hurdles and have proven systems, creating immediate revenue and a safer investment than starting from scratch.

• Established Infrastructure & Assets: The purchase includes existing assets—like inventory, equipment, and technology—as well as operational procedures, saving on startup time and capital expenditure.

• Customer & Supplier Relationships: The acquiring business gains immediate access to a loyal customer base, brand recognition, and established, long-term supplier relationships.

• Experienced Personnel: Trained employees are typically in place, easing the transition and eliminating the immediate need for hiring and training.

• Easier Financing Processes Lenders are more likely to finance the purchase of an established business with a proven financial history and tangible assets.

• Faster Expansion: It provides a quicker pathway to enter new markets, acquire a competitor, or expand product lines compared to organic growth.

Purchasing a similar business would give the buyer a new stream of revenue and pool of clients, as well as increased branding in your market – even if you’re a microbusiness such as an independent restaurant or retail store owner. If you’re an accounting or law firm or other type of business services firm or medical practice, it may even increase your client base to other regions, depending on the location of the target business.

Another potential reason is that the target business offers additional services. For example, if you own and operate a construction firm that specializes in building houses, you may want to purchase a company that specializes in masonry and paving work so that you don’t have to subcontract that work whenever you build a new home.

How do You Perform Due Diligence?

When making a strategic acquisition, a small business owner may want to work with an M&A advisor or an accounting firm to handle the complexities of purchasing another business.

An advisor could be consulted on topics such as:

1. The feasibility of merging two company’s balance sheets;

2. The value of similar businesses in industry and in your geographic location to help determine the price;

3. The logistics of merging the two small businesses involved, and

4. How to fund the acquisition through debt or equity.

A reputable M&A advisor should be able to perform due diligence and find a list of compatible targets for an acquisition based on similar business models, revenue, management structures, and other factors. The advisor should also determine a fair value of the acquisition target based on the financials of the target business.

How do you Valuate a Business?

Determining the value of a target business can be a complex financing process that will depend on several factors. When valuating a potential acquisition target, a good M&A advisor will consider several variables, such as the target’s location, the size of the market in which it operates, and the general profit margins of the industry in which it operates.

Some of the general mathematical ways to valuate a business is use a multiple of:

• Seller’s discretionary earnings (SDE).This method is often used for small businesses that have less than $1 million in annual profits. The SDE is calculated by taking the annual net profit of a business minus the owner’s salary, benefits and non-recurring expenses. Potential buyers sometimes use a multiple of 3 to 5x SDE to get a general idea of the value of a business.

• Earnings before interest, taxes, depreciation and amortization (EBITDA). For larger small businesses with 1 or more employees, a potential buyer could use a multiple of EBITDA between 3x to 5x.

• Potential buyers can also get an idea of a business’ value by taking a market-based approach, which simply compares the target business to the value of similar businesses that recently were sold.

• An asset-based approach can also be used, in which a prospective buyer calculate as the value of a small business by totaling the current value of all of its tangible assets minus its structural liabilities. This approach is often used when a target business is capital heavy, meaning, that it relies on physical assets such as equipment and machinery, in addition to cash.

What Financing is Best for M&A?

There are several types of loans available to purchase another business, especially if the purchasing small business owner has years of experience operating in the industry of the target business.

1. SBA 7(a) loan. The SBA 7(a) loan is often considered the gold standard of small business loans. 7(a) loans typically offer the lowest interest rates among lenders since the loan is partially guaranteed by the U.S. Small Business Administration. It provides a large amount of liquidity for an acquisition (a maximum of up to $5 million).https://www.sba.gov/partners/lenders/7a-loan-program/7a-working-capital-pilot-program

2. This type of loan, however, requires a high credit score, has a lower speed of funding than conventional term loans, and usually requires more paperwork.

3. Term Loan. A term loan also provides a lump sum of money upfront, usually ranging between $250,000 and $5 million – again, plenty of liquidity for a small business acquisition. It is different than a 7(a) loan in that it may offer a higher interest rate since it’s not backed by the SBA. Term loan lenders tend to offer more flexible terms than 7(a) loans, have a quicker speed of funding and may require a slightly lower credit score.

4. Seller Financing. In seller financing, the target small business acts as the lender. The buyer will make a down payment to the target business owner and then pay for the remainder of the business over time plus a pre-agreed upon interest rate. Lawyers often need to get involved to negotiate the terms of this type of transaction, including what happens in case of default. In some cases, seller financing may be one of the only ways to finance an acquisition given that most lenders will not approve financing if the buying small business owner has no practical experience operating in the target business’ industry.

5. Revenue-Based Financing. Revenue-based financing may be a good option if the target business has a strong history of sales and the potential buyer may not have a strong credit rating. Revenue-based financing provides a lump sum of capital to the buyer in exchange for a percent of future receivables on a daily, weekly or monthly basis plus fees.

What logistical Factors Are There?

While merging two small businesses may be a great idea on paper, the logistics of doing so can be complex. Having to merge two staffs and management teams, creating a new business plan, and coming up with a new growth plan are just some of the tasks that the acquiring business must perform.

If two small businesses merging, some of the tasks that must be completed are:

1. Creating a Combined Business Plan. New short- and long-term business plans for the combined entity must be created. This will create a GPS for the new entity in terms of operations, growth and potentially obtaining financing in the future.

2. Creating a New Management Team. Decisions will need to be made as to which executives will oversee the new entity. This may involve creating new departments and naming new department heads, especially in the case of professional services firms such as small law or accounting companies. This will smooth out operations in the new entity and eliminate confusion among workers as to what their functions are.

3. Eliminating staff redundancies. As with many mergers, the unfortunate task of cutting redundant staff may have to take place in order to make the new entity as lean and efficient as possible.

4. Creating new debt management. A acquiring company will have to show that it can safely absorb the debt of the old company. This may mean coming up with new, efficient refinancing plans to enable the new company to take on new financing in the future.

Seize the Future

The upcoming decade will represent a shift in the American small business landscape. With millions of baby boomer-owned firms approaching a transition point, the climate is right for strategic growth through acquisition. However, acquisitions require more than just good intentions - they demand a disciplined approach to valuation, a clear financing strategy, and a meticulous integration plan. By leveraging professional M&A advisory and conducting thorough due diligence now, you can put your small business in the right position for long-term growth and profitability.