The first half of 2018 has already hit a record number of small business sales, according to BizBuySell.com, the Internet’s largest business-for-sale marketplace.
In the first two quarters of 2018 there was a total of 5,383 businesses sold. This puts the year on pace to surpass last year’s record-high of 9,919 transactions.
But what is fueling the growth in small business sales? Experts say that improving business financials and the large number of Baby Boomers retiring could be attributed to the increase of sales.
Let’s take a look at the Second Quarter 2018 Insight Report to examine the transactions and demographics.
In Q2 alone, 2,705 businesses changed hands this year. This is an increase of 6.7 percent from the same quarter last year. It also is the largest increase of any quarter that BizBuySell has tracked since they began in 2007.
As for financials, median revenue of businesses sold in the second quarter totaled $526,048, which is a 7.4 percent increase from 2017 and median cash flow reached $120,000, growing 3.4 percent from last year. Also increasing was asking price by 4 percent to $260,000 that in turn raised the median sale price to $239,000, which was a 4.4 percent increase from 2017.
Seeing that there’s been an increase in sale prices and financials, it’s a win-win for sellers and buyers. The extra cost of buying a business with better financial footing is better off in the long run for new owners.
For those who have not taken advantage of the market, there’s still time. Reports indicated that in the second quarter of 2018 there was a 5.1 percent increase in active listings.
"The current business-for-sale market is a great reflection of today's economic and demographic environment," Bob House, president of BizBuySell.com and BizQuest.com, said.
"As America continues to see a swell of Baby Boomers reach retirement age, the market will likely continue to see a strong inventory of businesses for sale. Meanwhile those same businesses, many of which dug their way out of the last recession, now have the financial performance they need to earn an acceptable sale price."
Baby Boomers Transfer Businesses to Younger Buyers
Baby Boomers have been a huge part of the small business success; they own 53 percent of all small businesses, two in three Baby Boomers have owned more than one business, and 68 percent have owned their current business for more than 10 years.
Research shows that within the next two years, nearly 60 percent of Baby Boomers will be selling their business.
Immigrants still have an impact on the small business community. Non-natural born citizens account for one-third of small business buyers, with 64 percent as first-generation immigrants and 16 percent are second-generation. This is quite a jump in numbers, as current non-natural born citizen owners are 48 percent first generation and 10 percent second generation.
As for the minority of small business owners, women still take that role at 22 percent. Although, when compared to men, twice as many female owners are in their 20s and twice the amount of female business owners identifies as African American.
Strong Pace in Second Half of Year
The outlook for the rest of 2018 is optimistic. High sale prices continue to grab the attention of sellers, while buyers are taking advantage of the high quality of the businesses in listings.
The Tax Cuts and Jobs Act passed in 2017 may also cause a further spike in business transactions. Many owners benefit from a 20 percent deduction for qualified business income through the new tax law, which means if most owners re-invest those savings back into their business there will be an increasing number of attractive businesses available.
"Baby boomers are trailblazers when it comes to entrepreneurship," said Bill Luce, President of Transworld Business Advisors, one of the nation's top business brokerages. "As Baby Boomers continue the strong tailwind, this market trend is sure to stay in style for years to come."
If you’re looking into selling or buying a business, contact the experts at George & Company. We have over 40 years of experience in the sale and purchase of businesses.