Business Owner Research

Goals

To understand the percentage of businesses that create enough profit for the owner to exit or retire, the percentage of businesses that are successfully sold, and the primary reasons that owners exit (sell) their business.

Early Findings

  • We were not provided a geographic focus for this project, so we assumed a United States focus. If a more broad approach is desired, for example, a global view, this would have to be clearly communicated to us in any reply.
  • We were not provided what kinds of businesses to look at, so again, we are taking a broad approach and looking at all industries. We were also not informed about the size of the business (small, medium, or enterprise). We decided to focus on small businesses as there are 30.2 million small businesses in the United States and small businesses comprise 99.9% of all United States businesses. If we should not be focusing on small businesses, that should clearly be communicated to us in any reply.
  • According to BizBuySell's Insight Report, 2018 was a record year for buying and selling a small business. "The numbers for 2018 were the culmination of a three-year record run with a total of 10,312 businesses reported sold for the year. This was a 4% increase from 2017 when there were 9,919 businesses sold and a 31% surge in 2016 was responsible for a high of 7,842 businesses being sold for the year." A graphic illustrating this can be viewed here.
  • However, when looking at the 2020 data, small business transactions dropped 39% in the 2nd Quarter of 2020. "This represents the largest year-over-year decline since the Great Recession, when transactions dropped 50% in the 2nd quarter of 2009." This is due to government mandated shutdowns because of COVID-19.
  • "During the first week of July, BizBuySell surveyed 3,181 small business owners and buyers to learn how the pandemic had impacted their business or buying decisions. According to the survey, 20% of business owners closed their doors as a result of the pandemic, with another 32% suspending partial operations. "
  • Fearing the worst and not understanding where this pandemic might lead, many buyers paused their search. "Others, wanting to move forward, were unable to due to lenders freezing loan approvals. This dynamic combined with dried up cash flow for impacted businesses complicated short-term exit plans and resulted in some owners pulling their businesses off the market. An early April survey of business intermediaries conducted jointly by the IBBA, M&A Source, and Pepperdine Graziadio Business School indicated that nearly half of transactions were being delayed due to the pandemic."
  • The good news? "In July, 71% of surveyed owners that were forced to close had resumed operations. Entrepreneurs are pivoting, adapting, and seeking opportunity amidst the disruption brought on by the pandemic, and as a result, acquisitions are steadily bouncing back from April lows."
  • Sixteen percent of owners plan to exit their businesses earlier and 20% plan to exit later due to the pandemic, according to this survey.
  • Fifty-five percent of current owners feel the time is right to get a favorable price and good value, and 42% have started or accelerated plans to purchase (vs 24% who have delayed). Thirty-eight percent of current owners are trying to fast track a business purchase by Sept 27th to take advantage of 6 months of free principal interest on SBA loans, a CARES Act benefit. Of those, 35% would pay a premium to meet this deadline. Sixty-one percent of current business owners would consider purchasing a business that has been closed by the pandemic, and 80% would consider purchasing a business that has remained open but has been negatively impacted.

Summary Of Our Early Findings Relevant To The Goals

  • Our initial hour of research was spent ensuring that the research questions could be answered by publicly available sources, and then providing some relevant and salient data points to set the table for future research.
  • There is no publicly available data surrounding the percentage of businesses that create enough profit for the owner to exit or retire. Based on this we are pivoting to another research path that will provide useful insights regarding this part of the research. (Please see scope 2).
  • Please select one or more of the options provided in the proposed scoping section below.

Proposed next steps:

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