According to a Federal Reserve survey, approximately 50,000 businesses changed hands in the United States in 2001. By 2004, The Federal Reserve survey reported the number of companies sold increased to 350,000, and it went on to project that in 2009, 750,000 would be sold. While there are 23 million businesses in the United States, only about 5 million actually have employees, leaving a lot of very small and home-based businesses (a total of about 17 million of them). Census data indicates that many of these are small mom-and-pop businesses. Will all the companies be sold? Probably not. Historically, about one third will be passed on within the family and two thirds will be sold.
Just looking at the baby boomer population numbers, a fair approximation of the coming flood of business opportunities is evident. A tidal wave of baby boomers reaching retirement, judging from the Federal Reserve survey mentioned earlier, indicates that the selling wave has already begun. It should steadily rise over the next several years or so, peak during the 2020s, and then slowly taper off the following 10 years. So, over the next two decades it appears that there should be a lot of opportunities to purchase some great businesses.
What does that mean for our current business owners?
If you’re a business owner, the best thing you can do for yourself is to begin thinking about exit-planning now, even if you have no intention of selling your company. The second thing is to get professional help from a financial professional trained in this field when you do. Once you sell your business, you will only know how much you got for it, but not how much you could have gotten if you would have had professional advice. The difference could be substantial. “When business owners get professional help, they can occasionally get two or three times as much as when they sell it themselves,” according to Dennis Roberts, CEO of the McLean Group LLC, a national, middle-market investment bank. “The owner will almost always be able to get at least 20 percent more than he or she other-wise might have”, so it is worth it. (Mr. Roberts’ figures are based on extensive review of large numbers of reported transactions and business comparables). The dark side for the business owner in all of this is that these sales will happen in a relatively short amount of time because of the wave of business owners hitting age 65 in the next 20 years, and there are a lot of them. At some point, there will begin to be a glut in the market place and a need for more buyers, which could conceivably drive prices down. The best way to avoid getting caught in that is to get ready now.