Record Number of Small Businesses Sold in 2016

The Washington Post recently reported that a record number of small businesses were sold in 2016. According to a recent study by BizBuySell, a total of 7,842 small businesses were sold in 2016, which represents the highest total since 2007 when the earliest data was available.

As a CFO consulting service for a wide variety of small businesses, we have also been a part of this increasing trend.

Some of the key reasons cited for the high number of small businesses bought and sold include:

  • Companies that were sold had grown their revenues (+5.2%) and cash flow (+5.4%) over the previous year.

  • Having stronger financials due to sales growth, increased profits and cash flow led to higher valuations for small business. The average sales price was up almost 3% in the 4th quarter of 2016.

  • Many small business owners who sold were older baby boomers who are looking to retire.

  • Conversely, there is an increasing number of business acquirers who are millennials looking for a new business opportunity.

  • Interest rates (i.e., the cost of capital) remain at very low levels, which makes it easier for acquirers to buy businesses.

  • For small businesses here in the San Francisco Bay Area and Silicon Valley, the valuations of the companies sold were higher than the national average based on either a Price / Revenues or a Price / Cash Flow multiple.

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