Small business owners who have been waiting for the perfect time to sell may be seeing that time. Small business sales in 2013 were up 41.7 percent from the previous year, and that boom is expected to continue, according to the BizBuySell Insight Report published on Wednesday.
Developed by leading online business marketplace BizBuySell, the report summarizes a nationwide survey of business brokers, 68 percent of whom told BizBuySell that the number of business sales they handled increased in 2013. Furthermore, 83 percent reported expectations for continued marketplace growth in 2014. The report also revealed key insights into the cause behind the business sales boom.
"The dramatic increase in 2013 small business sales can be attributed to multiple factors, including the improving economy, strong supply and demand fundamentals (i.e., an aging business owner demographic and an increase in the number of qualified business buyers) and continued improvement in small business financial performance," the report explained.
In other words, most business brokers credit the growing business-for-sale marketplace with a simultaneous influx of both buyers and sellers. Why did this happen in 2013? About 19 percent of surveyed brokers believe that demand (the number of buyers) increased due to increased confidence in the economic recovery, as well as increased supply (sellers).
Many business owners who waited out the recession are now seeing growth in profits, giving them the perfect opportunity to strike gold while the seller's market is hot. Successful baby boomer business owners, especially, are recognizing the strengthened economic environment as an ideal time to sell and retire. As the old adage goes, "The best time to sell a business is when it is doing well."
Selling a Business in 2014
Despite the improving economy, businesses are still making major decisions with caution. Many owners may be tempted to jump on the selling bandwagon without a concrete strategy, but business brokers still urge owners to proceed dutifully.
During a recent interview regarding "Business Valuation: More Art Than Science," business broker Ken Ducey explained why sellers often miss out on potential profits when the final deal is made.
"I could get 10 'experienced' buyers in a room and present them with the same business, and they would typically come up with a very wide range of values," said Ducey.
Whether the economy is good or bad, business valuation remains a constant challenge for sellers. They want to get the most money they can for their businesses, but they don't always realize how many factors go into a true appraisal.
"Valuing a business is without a doubt one of the trickiest things in the business community," said Ducey. "There are so many different ways to value a business. Unfortunately, it's more art than science in many ways."
Coinciding with Ducey's cautionary interview, the BizBuySell report indicates that seller supply in 2013 slightly outweighed buyer demand, suggesting that business owners need to strategize carefully in order to sell at peak price. The savviest sellers will get multiple valuations from a variety of reputable business brokers, ultimately preparing for negotiations around peak selling price.
Selling a business certainly takes time (about 8-10 months), so owners who are ready to dive into the market do need to consider what may change in the future. However, as the BizBuySell report states, "Overall, 2013 was a great stepping stone to what should be a healthy business transaction market for some time to come."
For more information on selling a business in 2014, check out the Forbes articles "The 5 Things Entrepreneurs Must Know When Selling A Business"