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.
Check out the infographic for more details. If you’re considering buying a business or selling one you’ve built, contact a SCORE mentor. These seasoned volunteers can guide you through the process — and may have personal experience to share!