Small biz buyers and sellers ready to wheel and deal
Since the recent "great recession," in which small businesses struggled to find acquisition funding, and in which sellers were shy to pitch their underperforming companies, companies among both parties is turning around.
One of the largest online business-for-sale marketplaces, BizBuySell.com, recently announced results of a nationwide survey of more than 1,500 business buyers and sellers aimed at better understanding wants, needs and motivations of buyers and sellers in today's small business market. The study found both parties optimistic about their prospects of finding a match at an acceptable price.
This was before the Oct .1 federal government shutdown, essentially a "manufactured crisis" engineered by extreme factions of the Republican Party funded by anti-government interests opposed to President Obama's successfully passed Affordable Care Act legislation, major parts of which are set to go into effect this month. Although most economists agree a temporary shutdown will have negligible big-picture economic impacts, there were no signs yet this week that House Republicans would back down from their current strategy.
A more ominous deadline approaches in 10 days, when U.S. Treasury Secretary Jack Lew estimates the United States will exhaust its borrowing power and additional deficit spending will require a new authorization from Congress for a higher debt limit. As has been widely reported, failure to make the change by Oct. 17 would create a technical default, sending the U.S. and global economy into a tailspin that could rival even the recession hatched in 2007 – and in which small businesses would again bear the largest brunt. House Republicans are also attempting to use the debt limit deadline as leverage to extract concessions from the president.
The last manufactured crisis over the debt ceiling, in August 2011, ended with an 11th-hour agreement under pressure from Wall Street. Assuming (as some political and business leaders do) that all the doom and gloom can be avoided in another last minute resolution, small business optimism may continue to incrementally improve.
Small business buyers and sellers had been growing more confident that the time to make a transaction is now. Many sellers have been patiently waiting out the recession in order to receive an acceptable sale price. This includes a large number of Baby Boomers looking to retire. At the same time, buyers are now getting better access to financing and hoping to take advantage of the buyers' market. In fact, of the prospective buyers surveyed, 88% consider themselves in the market to purchase a small business within the next 1-2 years.
"People's perception of the economy has changed in the past 12 months," one seller noted, suggesting that the improving economy has increased the pool of prospective buyers.
In fact, both buyers and sellers were confident they could close a deal quickly in today's market. More than 78% of buyers believed they could find and buy a business within a year of starting their search while 70% of sellers expected to be able to sell their companies within a year, according to the BizBuySell.com survey.
There are nearly 26 million businesses in the United States, and the U.S. Small Business Administration estimates a whopping 99 percent of all employers are “small businesses.” Small, local, medium and regional businesses—especially firms less than five years old— are the lifeblood of a healthy, sustainable economy, creating roughly two-thirds of net new jobs each year.
Data collected by the U.S. Census Bureau and SBA during the heady economic years of 1989 to 2003 show small businesses accounted an even higher percentage net new jobs in that time. The smallest among the small businesses (those employing fewer than 20 employees) led the pack. While small businesses created net new jobs in 12 of those 14 years, large businesses eliminated more jobs than they created in five of those 14 years.
"Qualified business buyers ... are now very active in the market relative to previous years," said Curtis Kroeker, group general manager at BizBuySell.com. "At the same time, because they see more buyers entering the market, the majority of sellers are also optimistic. It's a virtuous cycle that bodes well for both buyers and sellers. With both sides ready to come to the table, we're seeing market fundamentals aligning in a way that bodes well for continued strong small business ownership transition volumes in the United States in the months and, hopefully, quarters to come."
Now if only disparate factions of the Republican-controlled House could come to the table with initiatives that offer something of value to U.S. small businesses.
Further intricacies of the BizBuySell.com survey are highlighted in the infographic below.
Slideshow photo by RickChung.com.