Are you considering selling your small business — or buying one? The current small business market is “a hotbed of activity,” according to the latest report from BizBuySell. Nearly three-fourths (73 percent) of small business brokers say they expect sales of small businesses to grow this year.
Who's buying and who's selling small businesses? Here's a closer look.
Small Business Sellers
As you might expect, small business sellers are primarily white men over age 50. Currently, 78 percent of small business sellers are male, and 22 percent female.
Today's small business sellers come from entrepreneurial families — 55 percent have parents or grandparents who owned small businesses.
In addition, 58 percent of small business sellers have owned a previous business — in other words, they’re serial entrepreneurs, the group most likely to value their businesses at over $1 million.
Why are business owners selling? Retirement is the most common reason — not surprising since so many of the sellers are in their 50s and 60s. However, 25 percent of those who are selling their business to "retire" define retirement as working on another business. Some 21 percent are motivated to sell their businesses due to burnout. On a more positive note, 20 percent say they want to move on to own a bigger business.
More than four out of 10 female business owners in the survey are in a position to sell their companies immediately, compared to just 26 percent of male business owners. However, women business owners are more likely to say burnout and health issues are motivating the sale of their business. And just 13 percent of female business owners plan to buy another business after selling their current one, compared to 32 percent of men.
Small Business Buyers
While small business buyers are more ethnically diverse than sellers, most are still white men, typically in their 40s and 50s. However, younger business buyers tell a different story: the younger the buyers are, the more ethnically diverse and gender-diverse they are.
Most small business buyers are currently full-time employees (64 percent). Interestingly, nearly half (46 percent) have previously owned a business.
The number-one reason for buying a small business is "the chance to be your own boss" — 63 percent of all buyers cited this motivation. Other top reasons are the desire to make more money. And 32 percent buy a business as a side project or source of supplemental income.
What's holding potential small business buyers back from signing on the dotted line? Raising enough capital is the number-one challenge, cited by 41 percent. The risk of failure (36 percent), industry outlook (29 percent) and timing (20 percent) are other hurdles.
When it comes to financing sources, 50 percent of buyers will pay cash for the purchase, 51 percent will use bank financing, and 45 percent will look for businesses offering seller financing. Female business buyers are less likely to be using seller financing, and they’re more likely to target businesses valued at under $200,000 or non-employer businesses.
If you’re considering buying (or selling) a business in the next year or so, your SCORE mentor can help you plan your exit—or entry—to the world of entrepreneurship. Visit www.score.org to find a mentor today.