Sales of small businesses in America continue to rise, according to an updated report from BizBuySell. Specifically, there were 2,368 closed small business transactions in the first quarter of 2017, a 19.7 percent jump from Q4 2016 and 28.7 percent higher compared to this same period last year. In fact, the Q1 2017 sales figure was the largest number of quarterly transactions recorded since BizBuySell started tracking data in 2007. The report’s authors attributed some of recent gains to “a healthy economy, strong small business financials, and access to financing,” that are together “enticing more buyers and sellers to the market.” 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 over the past year, along with an 8.4 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 that 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