One of the indicators of a reviving economy—purchases and sales of small businesses—is picking up steam. According to the just released BizBuySell Insight Report, the number of business exits by small business owners was up 49 percent in 2013 compared to 2012.
This is based on closed transactions reported by the nation’s business brokers. The full-year totals represent the first year of extreme improvement in the business-for-sale industry since levels reached record lows in mid-2009.
In 2013, 7,056 small business sales were reported by brokers, a large spike over the 4,730 transactions reported in 2012.
The report reflected the improved business performance as the median revenue of small businesses rose 13 percent to $405,905 and median cash flow grew 9 percent to $97,000. Strong financial improvement, in turn, helped push the median sale price up 13 percent to $180,000.
“This year  was the year of recovery that everyone has been waiting for since the September 2008 financial crisis,” said Curtis Kroeker, group general manager of BizBuySell and BizQuest.com. “After the onset of the Great Recession, transaction activity fell sharply until mid-2009 and then bumped along without meaningful growth. This created pent-up supply and demand that needed the right economic and capital conditions to materialize. In 2013, those conditions finally came together, resulting in a large increase in business transactions and contributing to a healthier small business environment overall.”
There is a huge range of what people consider to be a small business, Kroeker observed. “By and large, the businesses targeted in the survey are main street businesses: restaurants, gas stations, convenience stores, bars and taverns, independent retail shops, dry cleaners and laundromats, and florists. Service businesses include plumbing, electricians, landscaping, garage door services, health services , fitness clubs and spas, and beauty salons. There are also some small manufacturing businesses, and online businesses as well as small distributors.”
“The underlying cause of the turnaround is the economic recovery, and how it manifests itself to small businesses,” said Kroeker. “For the sellers, it means, first, that there are more saleable assets because they weathered the storm, with a business that is hopefully growing rather than shrinking. Second, the increase in home values and stock means that baby boomers’ personal wealth has improved. Their nest egg is back to where they need it to be. They may have wanted to retire for a while, but now they can.”
Of course, people sell their businesses for reasons other than retirement, Kroeker noted. “They may be selling because they’re buying another business, they may be serial entrepreneurs, or they may leave because they just weren’t successful and are looking to find something they’re better at doing. Some of them sell because they feel burnout. They feel the small business thing was great, but it’s a lot of work. Now it’s time to get a normal job and not have to work so hard. In addition, there are life changes, such as health conditions or other responsibilities that aren’t compatible with owning and operating you own business.”
For buyers, higher personal wealth makes it easier for them to afford the down payment and to qualify for financial assistance, Kroeker observed. “They’re buying into an upswing in the business cycle, so they’re poised for years ahead of a great recovery. Related to that is the personal confidence it takes to decide to buy and operate a business. When the economy was going south, many didn’t want to take the plunge. Now that they see the economy improving, people who were on the fence feel better about making the move.”
Financing the purchase of a small business is still more difficult than before the crisis hit, Kroeker indicated. “It’s still tough, but it’s much better than in 2012 or the other years of the crisis. The trends and metrics are pointing in the right direction so I hope that 2014 will be another strong year.”
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