Over the last several years, the number of potential buyers in the business for sale market has exploded. The problem however is the supply of good businesses has not increased. Quality deal flow remains a massive challenge in the lower market and for larger institutional buyers like PE firms. One would also think that with more buyers the prices upon which businesses sell would increase drastically yet this is not the case.
According to BizBuySell’s 2024 Insights Report, the median sale price of small businesses increased by 3% in 2024. So yes, one could argue prices are being pushed up but nowhere near in relation to the number of increasing active buyers.
Why The Rules of Supply and Demand Are Not Taking Hold
Baby Boomer businesses are not coming to market as predicted
In the lower market, the so-called ‘silver tsunami’ of retiring baby boomers without succession plans has not materialized. The ratio of businesses listed on public business for sale websites that sell according to the broker community has been in the 25 to 33 percent range for years and has not improved.
Social Media con artists are polluting the water
Social media has corrupted the industry with an onslaught of loudmouth promoters with little or no experience selling high-priced courses, advisory services, and making misleading claims that good businesses can be acquired for no money down. Or worse, that individuals can acquire these and then have them run absentee. It is complete nonsense.
Simply apply logic – why would the owner of any good business consider selling their company to a complete stranger for no money down when they can easily sell it for attractive terms to a wide stable of interested buyers on the open market? Yet, many people believe these opportunities actually exist. As PT Barnum said: “there’s a sucker born every day”.
Business buyers have given themselves a fancy title that means nothing
There has also been a huge increase of individuals who have labeled themselves ‘Searchers’ to dovetail on the Stanford search fund model.
If you are not being paid a salary and have committed capital established for you by a search fund, you are not a ‘Searcher’. You are someone looking to buy a business. Further, when you mislabel yourself as a Searcher and you make inquiries with business brokers, they will laugh you off if you make that claim but you do not have committed capital behind you.
There is a limited pool of investors in the lower market
Obtaining funding to acquire a small business is not easy. Commercial banks, outside of SABA 7a loan programs are not going to lend money to an individual that has no collateral, no operational experience, or track record regardless of how solid the business may be that they want to acquire.
Thinking you will locate a good business and then find many willing investors is not an intelligent approach. Get SBA pre-approval and also know that seller financed deals are how the vast majority of lower market transactions get down.
Online Communities usually produce more questions than answers
There has also been an increase in online communities of prospective business buyers. Fundamentally, it sounds good to some people – the ability to interact with like minded people to ask questions to people in similar situations. It is absurd.
Why would anyone trying to accomplish something new seek out advice from individuals that are trying to do the same thing? Imagine, you have this universe of people who aspire to buy a business, yet they have no experience, little resources and usually no business operational experience and they are asking questions and getting advice from a group of individuals who have the same deficiencies. Talk about the blind leading the blind. It is insanity.
The Average Person and MBAs Are On Equal Footing
Buying a business is a blue-collar process. You must roll up your sleeves and get your fingernails dirty. If you do not have any experience in buying businesses, then step one is to acquire the knowledge you need to successfully navigate the 23 steps in the process.
MBAs from the best business schools have zero advantages in this process; they may think they do, and I have talked with many who believe exactly that, and they are all wrong. That formal education is great for hanging a diploma in their office, but what they teach at those schools does not transfer to the real-world of business buying.
I am a prime example; I have purchased 14 companies including one co-investment and never went to university. If you have an open mind and a willingness to learn, acquiring businesses can be easily done by anyone, if you are willing to put in the work.
Whichever Way The Crowd Is Running Head In The Opposite Direction
Expertise is what determines whether you will be successful at acquiring a business.
Not an expert? Not a problem. Align yourself with believable people who have already done what you are trying to accomplish.
Commit to learning everything you can about each of the stages of the business-buying process. Invest in resources that are presented by those with a track record of success acquiring companies. This is how you learn about business types, multiples, good fundamentals, issues to look out for that can become major problems after you buy and all other components to the process of buying a business.
Do not think of yourself as a ‘Searcher’ – you are a ‘Finder’.
Get out and meet with business owners and sellers. Nothing replaces face-to-face meetings. This is how you learn what it takes for specific businesses to thrive and whether you have that exact skill set or aptitude. You must match your greatest skillset to a business that requires that expertise to drive revenues and profits.
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