Sales of small businesses in America continue to rise, according to an updated report from BizBuySell. Specifically, there were 2,589 closed small business transactions in the third quarter of 2017, a 2.2 percent increase from Q2 and 23.9 percent higher compared to this same period last year. In fact, the Q3 2017 sales figure was the largest number of quarterly transactions recorded since BizBuySell started tracking data in 2007. The report’s authors attributed the latest streak of record-breaking transactions to “a solid economy, optimism for tax reform, and relaxed regulations under President Trump [that] may be encouraging more entrepreneurs to enter small business ownership.”
However, small business sales are also being boosted 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 considerably (-14.6 percent) over the past year, along with a 15.7 percent jump in the median asking 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 decade since the current economic expansion in America is already one of the longest in U.S. history.
Further, a CNBC/FPA 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. 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 stock market investors should diversify the equities 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, J.P. Morgan, CNBC, FPA
Post author: Charles Couch