Why Record Number of Small Business Owners Are Cashing Out Now

Aging business owning boomers looking to sell, millennials looking to buy, cheap money - and a sense that things may not be this good again for a while. JL

Gene Marks reports in the Washington Post:

Small businesses had a good year in 2016.  Businesses sold had grown both their revenues (5.2 percent) and cash flow (5.4 percent) over the prior year. Existing owners are also getting older. Many baby boomers are looking to retire and more millennials are looking for opportunities.70 percent of brokers said a quarter of their closed sales were related to boomers. Capital is cheaper and the asking prices for companies were almost 5  percent higher than a year earlier.
Exit…stage left!
That’s what a lot of business owners are saying – and doing.  In fact, sales of small businesses reached record levels in 2016. A total of 7,842 closed transactions were reported this past year, the highest annual total of small business sales since online business for sale market place BizBuySell first started tracking data in 2007, according to the company’s quarterly Insight Report published this week. Sixty-three percent of respondents to the survey also said they experienced more deals in 2016 than in 2015.

Why so many sales?

For starters, many small businesses had a good year in 2016.  The report found businesses that were sold had grown both their revenues (5.2 percent) and cash flow (5.4 percent) over the prior year. Good financials make a company more valuable and likely sparked an interest both from people looking for a good investment and those looking to get out.
Existing owners are also getting older. Many baby boomers are looking to retire and more millennials are looking for opportunities. So more deals were struck.  According to the report, 70 percent of the business brokers surveyed said that at least a quarter of their closed sales were related to baby boomers and 98 percent of those brokers expect this trend to continue throughout 2017.
Another factor is low interest rates and a favorable financing environment. Capital is cheaper and some buyers would rather control more of their fate than rely on the unpredictable stock market for returns or settle for low savings rates.
“After several years of strong business-for-sale activity, it is great to see even more growth in 2016,” Bob House, President of BizBuySell.com and BizQuest.com said in the company’s press release. “Not only are more small businesses changing hands, but healthier businesses put the new owners in a great position for continued success. This bodes well for the market, but also points to a bright future for small businesses overall.”
Although asking and sales prices were flat year to year, the asking prices for companies in the fourth quarter were almost 5  percent higher than the same quarter last year with sales prices also up 3 percent. The number of listings were also 8 percent higher than the previous quarter. That’s a pretty good start for year when optimism is already high.