Sales of small businesses in America remain elevated, according to an updated report from BizBuySell. Specifically, there were 1,979 closed small business transactions in the fourth quarter of 2016, a slight decline from the all-time high for quarterly transactions hit in Q3 but still 17.6 percent above the Q4 2015 sales pace. Moreover, there were 7,842 closed transactions during the past twelve months, the highest yearly total for small business sales since BizBuySell started tracking data in 2007. Surveyed business brokers cited an improving small business environment, more qualified buyers on the market, better financing options, and more owners looking to sell as the primary factors behind the continued growth in small business sales, with the latter likely being augmented by the aging U.S. population, i.e. Baby Boomers.
Indeed, many older Americans who own a business have reached or are nearing the age at which they will want to stop managing the day-to-day operations of their company. Such owners have probably also been motivated by a favorable market that has seen the time it takes for a business to sell fall by 11.6 percent over the past year, along with a 3.0 percent rise in the median small business transaction price. Adding to older owners’ increased willingness to sell is likely a desire to avoid the challenges of managing a company during another recession, something which many analysts believe is possible within the next four years since the current economic expansion in America is already one of the longest in U.S. history. Further, an FPA/CNBC study found that more than three-quarters (78 percent) of surveyed small business owners plan on selling their company in order to satisfy 60 percent to 100 percent of their old-age income needs.
Add to this the 28 percent of Baby Boomer small business owners surveyed by TD Bank who said that they “are not very or not at all confident” that they have enough savings to achieve their desired retirement lifestyle, and it should not be too surprising why many owners want to sell now while the market is still in their favor. More importantly, such a large dependence on a single asset could put the financial security of these soon-to-be retirees in a precarious situation should their company not sell for the price they had anticipated (and developed an old-age budget around). Just as retail investors should diversify the stocks they hold in their portfolio, small business owners should aim to diversify their retirement savings vehicles (401(k)s, IRAs, etc.), and in turn lessen their overall sensitivity to the eventual selling price of their company.
Sources: BizBuySell, Wall Street Journal, CNBC, FPA, TD BankPost author: Charles Couch