Sales of small businesses in America continue to rise, according to an updated report from BizBuySell. Specifically, there were 2,678 closed small business transactions during the first three months of 2018, a 10 percent jump from Q4 2017 and the highest quarterly total since BizBuySell started tracking this data in 2007. The report’s authors attributed 2018’s continued acceleration in transactions in part to strengthening revenue and profit numbers, and an earlier BizBuySell poll found that 72 percent of small business owners believe their financials will continue to improve throughout the rest of this year.
Tax reform appears to be a big factor behind such optimism because the latest survey data from the National Federation of Independent Business showed that more than 48 percent of small business owners believe the recent changes to the tax code will benefit their companies. At the same time, sellers are showing up in droves to meet rising demand, and the number of small businesses placed for sale on the market rose by 6.9 percent just this past quarter. Contributing to the uptick in sellers is the aging U.S. population, i.e. retiring Baby Boomers, because a growing number of 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.
Older 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 a 3.4 percent rise in the median sales price (now at an all-time high). Adding to older owners’ increased willingness to sell is likely a desire to avoid the challenges of managing a company during another recession. Indeed, while there are not any warning signs of an imminent recession, some sort of economic downturn occurring within the next decade would not be surprising since the current expansion in America has been going on for more than 105 months, making it one of the longest on record and more than twice the historic average.
Further, a CNBC/FPA study found that more than three-quarters 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, NFIB, CNBC, FPAPost author: Charles Couch