Here’s a possible entrepreneurial conundrum: If a business owner sees potential for growth, why would she sell? And if she doesn’t see any, why would a potential buyer purchase the business from her? It’s not just an academic question. Thousands of business owners struggle with finding the answer ever year.
In January, J.D. Harrison, reported for the Washington Post’s On Small Business section, regarding the news of a dearth of sales at small businesses contrasted with what was evidently considered the more headline-worthy news that sales of small businesses were “booming.”
Looking beyond the mere presentation of the economic statistics in the article, (as well as the article’s plain existence as a piece of successful earned-media for the provider of most of those statistics,) it does also provoke some questions worth pondering.
“Sales at small businesses languished last year, held back by tepid consumer demand,” the first sentence states. And yet, despite this, the majority of the article, which includes information culled from several reports on the state of business and the economy, seems much more upbeat:
- In December, small-business hiring reached its fastest pace since 2006
- 86 percent of small business owners who responded to a recent poll believe their firms will be successful in 2014
- 75 percent of brokers surveyed by BizBuySell, an online marketplace that connects small-business sellers with potential buyers, expect small business sales by baby boomers to continue to increase next year
- More than 7,000 small firms changed hands in 2013, a 50 percent increase compared with the roughly 4,700 that brokers reported in 2012
- 2013 saw the fastest pace of business turnover since the recession began in 2008
- Growth in sales of in retail and restaurant sector businesses – 71 percent and 78 percent, respectively – provided the most salient contribution to the pace of business turnover in 2013
Now, this sounds like it could be very good news. Yet, economic logic generally holds that if business is doing well, a firm will try to expand. So why are these firms not expanding?
If businesses are being acquired, the thinking might go, then the buyers are optimistic on the business’ prospects. However, we don’t know if the businesses were sold at a discount, or what the motivations for selling were by the owners. One theory is that many of these sales could represent baby boomer entrepreneurs cashing-out of their profitable businesses, looking to enter a comfortable retirement.
Alternatively, could it be that smaller businesses still do not have adequate access to capital to expand, and don’t want to bother trying any longer? Are baby boomer business owners, finally eligible for Medicare and Social Security, and still struggling to stay in the black, in a consumer economy not fully recovered to spending levels from back in the bubble, finding this an opportunity to cut their losses and head for the exits?
If sales are down, as Harrison says at the outset, how can business owners and buyers be optimistic? Perhaps the businesses are being sold and liquidated? Or the buyer is just a vulturous competitor, looking to prey on a floundering firm, and swoop in to poach the strongest remaining customers while planning to layoff the employees?
Under what circumstances would you sell your business? Under what circumstances would you buy someone else’s businesses? Let us know.