27 June 2017

The Missing Boom in Small-Business Sales

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Despite predictions that a flood of small businesses would be coming up for sale as owners of a certain generation ready themselves for retirement, many are holding on longer than expected. According to a U.S. Census Bureau count of owners of incorporated firms, people age 55 and older accounted for 38% of business owners in 2013, the most recent data available, up from 29% in 2005.

The holdouts have many reasons. In some cases, younger family members aren’t interested in taking the reins, complicating succession planning. Others haven’t yet recovered financially from the recession. Judy Habib, the 61-year-old co-founder and chief executive of KHJ Brand Activation, a Boston-based marketing firm with 50 employees, hopes to mentor successors to allow her to take on an advisory role, but she hasn’t yet figured out what will happen to ownership of her 30-year-old company.

Sales of small firms are on pace to drop 3% this year, after increasing in 2014 to their highest levels since at least 2007, according to BizBuySell.com, an online marketplace for buying and selling small companies. Brokers reported 1,814 business changing hands in the third quarter, the company says, down 5% from the previous quarter and 9% from the same period a year earlier.

Some analysts expect activity to pick up over the next few years as more boomers hit their 60s. Nearly one-third of owners of businesses with $100,000 to $10 million in annual sales anticipate a change in company ownership in the next five years, according to Barlow Research Associates Inc., a banking industry research firm. Most business owners expect to pass their business on to a family member or sell to a third party, but more than one-third of those with sales of less than $500,000 plan to liquidate, it says.

Gary Morrison, the 60-year-old owner of AR-EN Party Printers Inc., says he gets more than a dozen offers a year from brokers who want to help him sell his Skokie, Ill.-based printing company, which specializes in monogrammed napkins, matches and other personalized party accessories. Mr. Morrison isn’t interested until he achieves his current goal of hitting 100 employees and $10 million in sales.

Some business owners that struggled during the recession see new opportunities in the economic recovery. Robert Sharman, 59, a co-owner of Rowe Fenestration Inc., a consulting firm and supplier of materials used in commercial construction, says his 10-year-old firm used the downturn to hire high-quality workers, even though sales were slow. Now, with construction picking up, his plan is to double revenue every three years over a 12-year period before selling the company.

Preparing a small firm for sale often takes three years or more, says Michael Kalscheur, a senior financial consultant with Castle Wealth Advisors in Indianapolis, a process that includes getting a company’s financials to present a clear picture of its operation, training key managers and even more cosmetic fixes, like filling in potholes in the company parking lot.

Click here to access the full article on The Wall Street Journal.

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