Ever thought about starting a business but weren’t sure if you wanted to build one from the ground up? Buying a business could be the best way to fulfill your entrepreneurial dreams.
Our new infographic, “It’s a Great Time for Buying or Selling a Business,” looks at how small businesses change hands in the United States.
After jumping in 2013, small business transactions have remained stable with around 7,000 businesses bought or sold each year. “Part of the reason transaction activity stabilized in 2015,” BizBuySell reports, “may be that small businesses continue to grow financially healthier, allowing owners to ask for more money, creating a more balanced market.”
The price of purchasing a business is rising — and that’s good news for anyone considering selling. Last year, businesses tended to sell for just $25,000 lower than their asking price.
Internet B2B companies cost the most to buy, so be prepared with about $365,000 if you’re in the market for one. Meanwhile, you can likely buy a dry cleaning shop, restaurant, convenience store or barber shop for under $200,000. In fact, restaurants accounted for 22 percent of business sales in 2015, the highest of any industry.
But before you write a check, you’ll want to follow a few financial guidelines. Don’t invest more than 15 percent of your net worth into buying a business, and keep at least 10 percent of your liquid assets free for future business needs. “It is important to have a little bit of a financial buffer, in case some emergency would arise or the business would suddenly need some extra operating funds,” Jason Rueger of FitSmallBusiness advises. “Instead of investing all your liquid assets and being stuck with no cash, buffer gives you a financial cushion which you can draw from when needed.”
Thinking about selling your business? Don’t wait until the last minute — start doing your research and planning for sale two to five years in advance. Be sure to review your finances, as 31 percent of brokers surveyed reported bad financial health as a major reason why businesses don’t sell.
The economy is solid for both business buyers and sellers.
The sales of small businesses jumped from 2012 and have been stable since 2013
- In 2012, 4,730 businesses were sold
- In 2013, 7,056 businesses were sold
- In 2014, 7,494 businesses were sold
- In 2015, 7,222 businesses were sold
The prices of small businesses are also increasing
- In 2012, the median asking price was $187,000 with a sales price of $164,000
- In 2013, the median asking price was $195,000 with a sales price of $180,000
- In 2014, the median asking price was $200,000 with a sales price of $185,000
- In 2015, the average asking price was $225,000 with a sales price of $199,000
Average prices by industry
- Internet B2B small business = $364,400
- Gas station = $320,000
- Business/Medical Services = $272,400
- Restaurants/Bars = $155,000
- Internet B2C small business = $154,000
Restaurants accounted for 22% of all business sales in 2015, the highest of any industry.
Tips on buying a small business
If you are planning on buying a business, brokers suggest investing less than 15% of your net worth. They recommend keeping at least 10% of liquid assets free. Expect to pay around 20% to 40% of business costs out-of-pocket.
Tips on selling a small business
Start planning two to five years in advance, and learn the due diligence process. Consider seller financing which may increase your price by more than 15%. But maintain realistic expectations by researching business prices in your industry.
by Bridget Weston Pollack
Bridget Weston Pollack is the Vice President of Marketing & Communications at the SCORE Association. In this role, Bridget is responsible for all branding, marketing, PR, and communication efforts. She focuses on implementing marketing plans and strategies for the organization to facilitate the growth of SCORE’s mentoring and trainings services.