Sales of small businesses in America remain elevated, according to the latest quarterly update from BizBuySell. Specifically, there were 2,444 closed small business transactions during the second quarter of 2019, a 9.6 percent decline compared to this same period last year but still near the high-end of the historical range. The slight pullback in small business sales has in part resulted from the uncertainty being foisted onto the economy by the ongoing trade war. Overall, though, conditions are about as good as they have ever been for sellers thanks largely to improving financials. Further, small businesses in the second quarter of 2019 sold for a median price of $270,000, a 13 percent jump from Q2 2018 and a new all-time high.
Although sellers of all ages are showing up to take advantage of this favorable environment, retiring Baby Boomers have been responsible for a significant share of sales lately and will likely continue to do so for the foreseeable future. Indeed, more and more Americans who own a small business have reached or are nearing the age at which they will want to stop managing the day-to-day operations of their company. In fact, Boomers still own the majority of the small businesses in America, according to an earlier BizBuySell analysis, and nearly 60 percent of surveyed older owners said that they plan to sell their firm within the next two years. Apart from age, many owners may also be motivated to sell sooner rather than later in order to avoid the challenges of managing a company during another recession, something which may seem unavoidable now that the current economic expansion in America has become the longest in modern U.S. history. Passing on the management responsibilities, along with ownership, to one’s children is another option, but many owners appear likely to instead wind up selling their company to an outsider.
Why so? To help fund retirement, according to an earlier FPA/CNBC study on succession planning which found that more than three-quarters of surveyed small business owners plan on selling their company in order to satisfy 60-100 percent of their old-age income needs. That is not too surprising since a BMO Wealth Management poll found that an alarming three in four small business owners have less than $100,000 saved for retirement, and broader data from the Government Accountability Office showed that too many Boomers in general are ill-prepared financially for old age. 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 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, real estate, etc.), and in turn lessen their overall sensitivity to the eventual selling price of their company.
Sources: BizBuySell, NBER, Paychex, CNBC, Bloomberg, U.S. GAO
Post author: Charles Couch