Although both 2014 and 2015 were both great years for the small business market, with median sale prices rising over time, we have yet to see the tsunami of small businesses for sale that experts predicted just a few years ago. In fact, some people have begun to wonder if the market has plateaued or even peaked, since the number of sales in 2015 was actually slightly lower than the number sold in 2014.
While Baby Boomers are transitioning towards retirement and putting out feelers about when it would be best to sell their businesses, many Boomers are also purchasing businesses and therefore committing to being involved, at least in some capacity, in the economy for a number of years into the future. In recent years Calder has facilitated quite a few transactions where Boomers bought out Boomers (sometimes the buyers are even older than the sellers).
So what can we predict about Baby Boomers in this market? Will it take longer for them to retire than they thought or is the Boomer business market take-off just around the corner?
According to U.S. Census Bureau data, there are about 4 million Boomer-owned companies in this country. Two-thirds of businesses with employees are owned by Boomers. When the original predictions of Boomer businesses flooding the market were made, the economic situation was different. Because of the Great Recession, it looked like businesses would be lose their value over time. Boomers who wanted to get the most out of their long cultivated asset should then sell sooner rather than later. Since then we’ve seen the ratio of buyers to sellers level out in this market and selling prices actually go up instead of down. Without the anxiety over the economy, many Boomers have not been in a hurry to do anything permanent.
Another factor that must be considered is the Boomers’ overall financial health as a generation. That same recession significantly impacted Boomers’ net worth and at a time in their lives when they had less time to recover. Many of them now know that, especially with interest rates and other returns on investments being very low currently, they will be in better shape both now and in the future if they keep working until that is resolved. Permanently dialing back on lifestyle is something most people will avoid doing, if possible, regardless of age.
Many Boomers are choosing not to put their business up for sale, but selling them to coworkers or family members, so that drives the numbers lower as well. Finally, too many owners have not positioned themselves to be independent of their businesses. If a business is too owner dependent, sellers will notice and decline the opportunity to buy, knowing that without the owner the business isn’t profitable.
Regardless of how many companies are on the market presently or will be on the market this year or next, a solid business with sustained profitability and growth that is owner independent will always be a good prospect for a buyer. When it’s time to sell, then, the goal is to have your business in great condition.
If we at Calder Capital can advise you on your business now so that, when you are ready to sell, it will be be a positive experience, we would be glad to talk with you anytime about how we can make that happen together.
Please contact us at any point for a confidential discussion!
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