Boomer Business Owners are Ready to Exit—Here’s Why ESOPs are the Smartest Way to Get the Deal Done

As America’s Baby Boomer generation enters retirement in greater numbers, a massive wave of business transitions is already underway. More than 2.3 million businesses in the U.S. are owned by individuals aged 55 or older, according to Project Equity, and these businesses collectively employ over 25 million people. The big question now is: how will these businesses change hands?

Traditionally, business owners have looked to strategic buyers, family succession, or private equity firms as exit paths. But in today's market, those options are increasingly complicated—especially for small- to mid-sized businesses that may not fit the mold of a high-growth, high-margin PE target. That's where Employee Stock Ownership Plans (ESOPs) offer a compelling alternative.

A Faster, Smoother Transition

Business owners who’ve been on the market for months—or even years—often come to realize that their sale price expectations may not match buyer valuations. In these cases, negotiations stall, and deals drag on. An ESOP solves this by basing the sale price on a fair market value established by an independent third-party valuation. This removes the guesswork, ego, and speculation from the equation and allows deals to close faster—typically in 4 to 6 months—with fewer surprises.

Instead of holding out for a private equity firm to come knocking, a business owner can create a structured exit with clear terms and full or partial liquidity, while empowering employees in the process.

Boomer-Ready: Why Now Is the Right Time

A 2023 study by The ESOP Association found that the number of ESOPs continues to grow, with nearly 6,500 plans now in place across the country, covering over 14 million workers. This rise is being fueled in part by state and federal governments offering tax incentives to promote employee ownership. For example, under Section 1042 of the IRS Code, owners who sell to an ESOP can defer capital gains taxes if they reinvest in qualified replacement property—making it a financially savvy move for retirement-aged sellers.

Additionally, ESOP-owned S corporations benefit from federal income tax exemptions on the portion of ownership held by the ESOP trust. That means a 100% ESOP-owned S corp pays no federal income taxes, creating significant cash flow improvements post-transaction.

Preserve Legacy, Empower Employees

Many retiring business owners are deeply invested in the legacy of the companies they’ve built. Selling to a private equity firm or outside buyer might mean restructuring, layoffs, or culture changes. In contrast, ESOPs keep businesses rooted in the communities where they started and reward the employees who helped build them. Studies show that ESOP companies tend to have higher productivity, stronger employee retention, and better performance in economic downturns (National Center for Employee Ownership).

And from an operational perspective, the original owner can choose to stay on during the transition, helping to guide the company forward, or exit more quickly with a management team in place. It’s a flexible model that doesn’t require business owners to wait for a "perfect" buyer or an all-or-nothing deal.

More States Are Jumping In

In recent years, a number of states—including Colorado, California, and Pennsylvania—have passed legislation supporting the development of ESOPs, recognizing their potential to stabilize local economies and create generational wealth among workers. These efforts often include technical assistance, loan guarantees, and public-private partnerships aimed at helping small businesses make the transition.

Final Thoughts

If you’re a business owner who’s been quietly exploring options—or actively trying to sell without success—it’s time to take a hard look at the ESOP route. With clear tax benefits, faster execution timelines, and strong government support, employee ownership isn’t just a feel-good idea. It’s a practical, strategic, and increasingly popular solution for exit-minded Boomer entrepreneurs.

Contact Tzortzis Capital—our team of experts can guide you through ESOP best practices, help you purchase a business through an ESOP structure, secure the right funding, and even place experienced operators into position to ensure a smooth and successful transition.

Sources

• Project Equity – Baby Boomer Business Ownership Trends - https://project-equity.org/news/employee-ownership-insider/top-employee-ownership-trends

• National Center for Employee Ownership – ESOP Performance and Employee Retention - https://www.nceo.org/articles/research-employee-ownership

• The ESOP Association – National ESOP Statistics - https://www.esopassociation.org

• IRS – Section 1042 Tax Deferral Information - https://www.irs.gov/retirement-plans/employee-stock-ownership-plans-esops