Retirement as a Reason for a Small-Business Sale

baby-boomer-442252_640A recent news report revealed that in the second quarter of 2016 small businesses were a higher percentage of the businesses that were selling compared to Q2 2015. More than half, or 57%, of businesses sold in Q2 of 2016 were valued under $499,999. A year ago, it was only 50%.  U.S. courts have blocked a number of high profile mergers or acquisitions over the past few years for actual or potential antitrust violations, and that has resulted in small to medium-sized business mergers and acquisitions becoming a larger percentage of the whole business market pie.

A recent BizBuySell survey of 1,700 small business owners with an interest in selling and 1,300 prospective small buyers revealed some interesting things about the small business market right now. First of all, what are the reasons businesses are being put up for sale? Retirement, not surprisingly, is the number one answer sellers give. However, retirement can mean different things to different sellers. Broken down by age bracket, 60% of sellers are age 50 or older, and 25% are age 60 or older, so some of them fall within the traditional understanding of retirement age. Of those who state retirement as the reason for selling, only 48% of them actually intend to quit working entirely. Many of them intend to change lanes into a different type of employment, perhaps one that doesn’t require so much day-to-day management of others, or volunteer work.

Perhaps most revealingly, younger sellers were more likely to cite burn out as a reason for selling than older sellers. The higher the age, the less likely the seller was to state they were selling because of burn out.

What does this mean for motivated sellers right now? Well, we know from previous 2016 numbers that market forces are working well right now. Supply and demand have evened out and the result is a predictable median sale price and time on the market. It’s a good time for a seller who doesn’t appreciate surprises to list a business. It’s also important for business owners to be aware of how well positioned their business currently is in terms of sale. Within that pool of 1,700 owners who are interested in selling, 49% of them would like to sell within the next five years, but only 29% of them are actually prepared to sell. If you would like to better position your business for sale, contact a business broker now to see what changes could make for a quicker and easier sale and transition.

As a buyer, being aware of who is selling may give an advantage in terms of getting a sense for the value of the business being bought and why it’s available right now.  You may think you understand how factors like the age, ethnicity, or gender of the seller motivate the sale, but you might be surprised. Asking the right questions up front could save you a lot of time and trouble in the long run.