The McKinsey Institute for Economic Mobility published research in February projecting that about six million small and medium-size businesses will face ownership transitions by 2035 as baby boomers retire. More than one million of those firms are viable candidates for sale, carrying up to $5 trillion in enterprise value. The number that matters most to owners in San Diego and Orange County sits further into the report, where the researchers measured what actually happens when an owner exits today.

Closure Is the Default Exit

An estimated 510,000 small and medium-size businesses left the market in 2022. Ninety-two percent of those exits happened through closure, while five percent were completed as sales and three percent transferred to new owners, most often to family members. Since 2010, between 7 and 8 percent of all firms have closed each year, and McKinsey estimates that 6 to 13 percent of those closures could have been avoided.

The report traces the pattern to structural gaps in the market for small-business acquisition. Owners reach a predictable life event, most often retirement, without a succession plan, a current valuation, or a route to qualified buyers. The business still carries value on the day it closes.

Annual exits are projected to climb as high as 665,000 per year, roughly 42 percent above 2011 levels. The prior decade saw about 4.5 million businesses exit ownership, so the coming wave represents a step change in volume.

Where San Diego and Orange County Sit

Census Bureau figures count 106,961 employer establishments in Orange County and 93,407 in San Diego County as of 2023. Together those firms employ close to three million people. Owner-operated businesses without employees add another 623,000 nonemployer establishments across the two counties.

McKinsey found that major metropolitan areas hold more than three-quarters of the total enterprise value at stake while posting lower exit rates and stronger institutional capacity to absorb ownership change. Southern California sits on the favorable side of that divide. Buyers, lenders, and advisers concentrate here in a way they do not in rural markets, which shifts the regional risk away from geography and onto business size.

The Businesses Most Exposed

Nearly 80 percent of projected exits will occur among businesses valued under $2 million. McKinsey classifies the smallest of these, firms worth less than $500,000, as micro businesses, a category covering restaurants, small retailers, auto repair shops, salons, and neighborhood service providers. These operations carry the highest likelihood of closure because they fall below the deal thresholds that attract institutional capital and because their owners have the least access to advisers and acquisition financing.

Capital-intensive industries face a different version of the same problem. Among owners in manufacturing, mining, and utilities, about 26 percent are over 65 and more than 60 percent are over 55. Specialized equipment, technical knowledge, and heavy working capital requirements narrow the buyer pool for those firms even when the underlying operation is sound.

Across the full ownership base, more than half of small-business owners in the United States are over the age of 55. That concentration is what compresses the transition into a single decade.

Preparation Separates a Sale From a Closure

McKinsey describes a five-stage path running from aspiration and preparation through search, deal structuring, ownership, and eventual exit, and it locates most failures in the first stage. Owners who have never priced their business or identified who might buy it arrive at retirement with no transaction available to them.

Conditions on the buyer side have improved since the SBA doubled its combined 7(a) and 504 ceiling to $10 million effective July 4, 2026, widening the pool of individual buyers who can finance a business and its real estate inside a single structure. Underwriting standards did not loosen alongside the higher limit, so a seller with clean financials and organized records clears the process faster than one without.

Owners weighing a timeline can start with a defensible number. A seller’s discretionary earnings calculation establishes what the business actually earns for its owner, and that figure is what buyers and lenders both work from. Exit planning then covers the distance between that number and a closing, including the lease position, records, and management depth that determine whether a buyer can step in without the owner.

The alternative appears in the data every year, and McLintocks in Pismo Beach reached foreclosure and a $2.6 million starting bid after 51 years in operation and the loss of both founders. Census counts 161,704 employer firms across San Diego and Orange counties, and McKinsey’s projection runs through 2035, which places most of those owners inside the window the report measures.

Only Five Percent of Business Exits End in a Sale

Closure Is the Default Exit

Where San Diego and Orange County Sit

The Businesses Most Exposed

Preparation Separates a Sale From a Closure

Sources