The SME retirement dilemma: What to do with my business?

As Thailand’s business owners approach retirement, they are confronted with a pressing and complex dilemma that has deep socio-economic consequences. Ensuring that their businesses continue to thrive after they step away is not merely a personal concern but a broader issue with ramifications for the country’s economic landscape.
In this regard, there is an urgent need for careful transition planning. In the absence of such, numerous SMEs — the backbone of Thailand’s economy — will risk closure. This is a scenario that threatens not only the livelihoods of employees but also the destruction of long-established legacies.
Over 35% of Thailand’s SMEs have been in operation for more than 20 years and a significant portion of those are managed by Baby Boomers, those born between 1946 and 1964. As this generation reaches retirement age, a troubling trend emerges. Many of their businesses, despite historic success, are stagnating. Sales and profit growth rates are experiencing inertia, often due to a reluctance to adopt new, potentially risky strategies at a stage in their lives when stability is preferred.
Compounding the issue is that approximately 54% of these businesses lack a successor. Without a structured transition plan, the entire value chain associated with these businesses is at significant risk.
The potential repercussions of such business closures create a destructive ripple effect: suppliers may lose crucial contracts, employees could face unemployment, and local economies might experience disruption. These potential outcomes highlight a looming crisis waiting to affect various sectors across the country.
The Search Fund model presents a promising solution to facilitate this “great business transfer” from Baby Boomers to the next generation of entrepreneurs. This innovative approach, which has gained traction internationally, offers a structured method for managing business transitions.
A search fund involves investors backing talented entrepreneurs to identify, acquire, and manage small to medium-sized enterprises. For retiring business owners, this model provides a pathway to liquidation, while ensuring their businesses continue to thrive under new leadership.
One of the most compelling advantages of selling to a search fund is the opportunity to unlock the wealth accumulated over a lifetime of hard work. Such a decision would allow retiring owners to capture the financial rewards of their efforts, enabling a comfortable retirement while preserving the legacy they have built.
Selling a business through this model is particularly advantageous for those who have invested substantial resources into their companies and wish to see their creation recognised without jeopardising their retirement plans.
Moreover, selling a business to a search fund ensures business continuity and job preservation. Unlike winding down the business, which leads to closure and job losses, the search fund approach provides a structured passage to have in place new management.
The new management, search fund entrepreneurs, is focused on sustaining and growing the company, ensuring that it remains operational and continues to contribute to the economy. This method thus preserves the essence of the founder’s work and legacy.
Additionally, search funds can play a crucial role in nurturing new entrepreneurial talents. Too often we hear of young, ambitious individuals who dream of running their own businesses but lack the necessary resources to get started.
The search fund model provides these aspiring entrepreneurs with the opportunity to inherit established businesses and receive the support needed to drive future growth. This approach fosters upward social mobility by transforming established businesses into a launchpad for continued success and value creation.
Retiring founders should view their businesses as a platform to contribute to the country’s talent pool and empower the next generation of leaders, planting the seeds that will strengthen the economy long-term.
One compelling example of the effectiveness of a search fund comes from a young entrepreneur from Canada with an MBA, who raised capital to take over a B2B industrial business. She acquired a company specialising in purifying machine oils that was generating around 60 million baht in profit for approximately 220 million baht from a retiring owner who was eager to find a capable replacement.
This acquisition not only freed the owner to retire and pursue his interest as a glider pilot with 220 million baht in his pocket, but also left the business in good hands. The entrepreneur applied her skills to professionalise the company, preserve jobs and continue the founder’s legacy, showcasing how the search fund model could empower new entrepreneurs to successfully take over and build on top of established businesses.
In the end, search funds offer retiring business owners a golden opportunity to cash in on their hard-earned success while keeping their businesses thriving. This fresh approach tackles the big challenge of succession for many SMEs in Thailand, ensuring they keep fuelling the country’s economy. By choosing this path, founders can secure their retirement and leave a lasting impact, helping to shape the next wave of business leaders long after they’ve handed over the reins.
Pruek Vongvarotai holds an MBA from Harvard Business School and is a co-founder and managing partner at Skydeck Partners, the first search fund in Thailand focusing on acquiring and transforming local businesses.