The Rise of Small Business Sales

The rise of small business sales by adam kidanAs an entrepreneur, I have a long history with small businesses, whether it’s starting them, investing in them, trading them or selling them.  Since 2007, the website BizBuySell has been tracking data related to buying and selling online businesses.  According to their quarterly insight report, a total of 7,842 closed transactions were reported in 2016, the highest number on record.  Furthermore, 63% of respondents to a survey by the company said that they experienced more deals in 2016 than 2015.  So the question arises: why so many sales?

A lot of people have commented on how much they hated 2016, but it was actually a pretty good year for small businesses.  According to the report, businesses that were sold grew both their revenues and cash flow over the previous year.  Good financials make a company more valuable, sparking an interest from both people looking for a good investment and those looking to sell their business.  Existing business owners are also getting older.  As baby boomers get older and millennials look for opportunities, more deals are happening.  The report says that 70 percent of business brokers surveyed said that at least a quarter of their closed sales were related to baby boomers, while 98 percent expect this trend to continue into 2017.  

An additional factor is both low interest rates and a favorable financing environment.  Capital is cheaper, therefore some buyers would prefer to control more of their fate than rely on the unpredictable stock market for returns or settle for lower savings rates.  More small businesses have been changing hands, while healthier businesses have been putting their new owners in a great place to continue with that success, painting a bright picture for small businesses.  Even though asking and sales prices were flat year to year, asking prices for companies in the fourth quarter were almost 5 percent higher than the same quarter in 2015, with sales prices also up 3 percent.  This bodes well for the start of 2017.

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