Survey data from Contrarian Thinking’s business-buying community, plus additional economic and business data from Live Oak Bank and others.
TABLE OF CONTENTS:
Introductory Analysis
About the Small Biz Buyer Insights Report 2024, and an overview of the findings inside
About the Report
The information needs of current and aspiring business buyers are wide and varying. Some may be interested in learning about the characteristics of their fellow buyers, while others may want to build a stronger understanding of the broader economy through an SMB lens.
This report seeks to shed light on both of these areas, and the data gathered throughout highlights shifting priorities, opportunities, and challenges business owners and buyers are facing today.
Drawing on information and perspectives from small businesses, current and aspiring business buyers and sellers, and multiple industry experts, this report provides a holistic look under the hood at factors influencing buyer choices in a world rife with digital transformation and economic uncertainties.
The report begins by focusing on unique buyer insights gleaned from Contrarian Thinking’s survey of hundreds of members of our educational business-buying community. The group represents a new, dynamic movement of small business buyers, their acquisition efforts, financial goals, and more. The report then frames the conversation by highlighting owner sentiment, seller, and buyer data from Live Oak Bank and the International Business Brokers Association.
We greatly appreciate all those taking the time to learn more about the state of small business acquisitions — and we commend those working to reinvent the American dream on their own terms.
ANALYSIS
Small Biz Buyer Insights 2024
It certainly is an interesting time to be working in the business of small business acquisitions.
For decades, countless venture-backed, growth-at-any-cost tech companies launching with missions to “change the world” held the spotlight. TV shows, podcasts, books, news, social media — you name it, they’ve dominated it. But tides shift, and we believe we’re witnessing a shift now.
Headlines that once highlighted MBAs spurning top investment banking and consulting firms for early-stage startups now focus on those doing the same for SMB acquisitions. We believe over the next 15 years, certain terms (“cash flow,” “small business owner,” and “profitable”) will develop a similar cool factor to those that have pervaded the last 15 (“founder,” “venture-backed,” and “unicorn”).
Recent surveys from BizBuySell found 66% of business brokers think “an increasing number” of buyers will enter the market in 2024. Additionally, 75% expect more owners to sell their business in 2024 than in 2023.
This might not be surprising to you. One, because of the rising age of owners across the board (known as the “silver tsunami”), and two, because of the renewed relevance small business ownership has experienced in recent years.
In just the past year, for instance, we’ve witnessed business owners, buyers, sellers, lawyers, brokers, and operators building influencer-like media followings. We’ve enjoyed new podcasts on a host of small business-buying subjects. At Contrarian Thinking specifically, we’ve continued building community, events, education, and media for current and aspiring business owners and buyers. We’ve also continued operating investment funds that directly invest in small businesses and technologies that can support entrepreneurs and SMB growth.
For better or worse, the effects of all this interest in small business acquisitions can compound. More attention attracts more buyers. More buyers means more competition. More competition can mean better outcomes for current and future owners and builders, and better outcomes attract even more attention.
As business broker and Contrarian Community Facilitator Clint Fiore put it recently, “Owners are getting hit up constantly right now by cold outreach from PE, Searchers, Brokers, etc…” A problem with this, as he explained, is that all this interest has started going to some owners’ heads.
“They think they’re hot stuff, that everyone ‘wants them’,” Clint explained. Still, despite these recent effects, many believe the opportunities across small business acquisitions are slated for strong continued growth.
So, what exactly do experts think about the state of small business buying? What characteristics define this new generation of buyers? How do owners view their economic position today?
Through this report, we sought to answer questions like these by assembling a variety of data offering a holistic look at the realities on the ground.
We found that small business owner expectations about their own financial conditions and that of the broader economy weakened into Q4 as prices rose, sales and profits slumped, and cash reserves remained deflated. We also found that despite what many view as a frothy seller’s market, seller confidence remains somewhat flat, possibly due to uncertain inflationary conditions.
We also collected unique data about our community of current and aspiring business buyers, their demographics, financial goals, and acquisition efforts.
For context on the 230 members who account for our survey data in this report, most respondents reported between $100k-$500k in income, and the largest individual net worth cluster is the $1M-$5M group, at 24.6%.
Generally, respondents are early in their active acquisition search, and many plan on spending up to 20 hours per week on biz-buying efforts, or nearly 3 hours per day. Interestingly, the goal for income generated through an acquisition listed by many (but certainly not all) respondents could function as a replacement for current income.
Unsurprisingly to us, these buyers’ highest-ranked resource by importance was access to a community of like-minded peers and acquisition experts. Financial freedom, or the desire to achieve freedom and build personal wealth through business ownership, was the respondents’ highest-ranked motivation for pursuing acquisitions.
Contrarian Thinking’s Biz-Buyer Survey Results
About the SMB Buyer Survey
Wouldn’t it be fascinating to learn about a new generation of business buyers operating in today’s environment?
We thought so. So we asked members of our business-buying community a series of questions about their ownership experience, financial picture, acquisition efforts, and goals.
Then, we analyzed the results and created this roundup of findings. The following pages curate anonymous data from hundreds of Contrarian Community members, representing 23% of our approximately 1000-person community.
The findings offer an interesting look into the goals, activities, and needs of biz-buyers at varying levels of reported wealth and at different, often-early points on their small business acquisition journeys.
Respondents’ Background
Q1 2024 survey of 230 current and aspiring business buyers in the Contrarian Thinking community
Respondents’ Ownership Experience
While 50.4% of respondents describe themselves as business owners, 69.1% do not report having “significant experience” as an owner, and 32.6% count business ownership as their current primary role.
Respondents’ Financial Picture
Among respondents, 70.6% have a net worth of $1M or less. The largest individual cluster, however, is the $1M – $5M group, at 24.6%. Among the $1M -$5M group, 38.6% have a net worth goal of $20M+.
PERSPECTIVE
Buyers: Get Decisive and Move Fast
“With over 10,000 baby boomers retiring on average each day, we’re seeing continued growth in the number of businesses for sale. At the same time, there are more and more buyers looking to make an acquisition. Overall, we seem to still be in a seller’s market where there is considerable demand for the best listings. It’s not unusual right now for the very best deals to receive multiple offers and be under contract within a period of a few weeks. Buyers need to be decisive and move quickly when they see something they like. We’re also in a period of higher interest rates and tighter credit. This is making financing through traditional methods like SBA loans slightly more challenging than in the past. Selling prices are holding strong on Main Street where seller financing and other creative financing methods are being used a bit more frequently. Terms are being negotiated to a larger extent than price. As people become more comfortable with the new norm of higher interest rates, and inflation fears wain, we‘re likely to see even more deal activity going forward. Right now the overall sentiment is cautious but seems to be improving steadily.”
Respondents’ Financial Picture
Across net worth levels, respondents tend to favor the 5- to 10-year time horizon for hitting their net worth goals. Additionally, most respondents report between $100-$500k in annual net income.
Resources Biz-Buyers Say They Want
Average ranking based on importance to respondents, Q1 2024 survey of 230 current and aspiring business buyers in the Contrarian Thinking community
- Access to a community of business buyers and acquisition experts
- Access to education about acquisition financing
- Access to specific tools and to assist with acquisition efforts
- Access to education about operational matters (time management, negotiation, outreach, networking, broker relations, taxes)
- Access to education about legal and regulatory matters
- Access to education about post-acquisition integration and growth
- Access to education about specific industries
Motivations for Pursuing SMB Ownership
- Financial freedom: The desire to achieve financial freedom and build personal wealth through business ownership
- Lifestyle change, such as the flexibility to set one’s own schedule
- Personal fulfillment or impact: Interests, entrepreneurial aspirations, or impact on employees and community
- Operational autonomy and control: The motivation to be in control of decision-making and have autonomy over business operations
- Industry passion: Genuine interest and enthusiasm for a specific industry or field in which a business operates
Respondents’ Acquisition Efforts
At the time of the survey, many respondents were early in their active acquisition search, with a majority having been on the hunt for their first or next business for 3 months or less.
PERSPECTIVE
The Year of the Cashflow Seller
“2023 represented what I believe may be a peak year belonging to the seller. Strong sales numbers of businesses, high demands as cash flow grew through the fourth quarter, and slightly higher prices from 2022. We’ve seen profit multiples hold steady as well as a slight downtick in revenue multiples, which underlines how cash flow businesses were prioritized over all else. In our group of more than 1k current and aspiring business owners, lots of deals were done and volatility remained minimal, with just a small handful of reported business failures. However, I anticipate that number will rise in 2024 across the industry. Depending on how rates move, the upcoming year could shift toward benefitting the buyer. This past year was also a year we saw seller financing surge across the board, with a number of our community’s buyers landing significantly seller-financed deals, and more buyers than I’ve personally ever seen incorporate seller financing into deals. There still appears to be a significant market of sellers holding back against seller financing, as of course, they’d prefer all-cash deals. If markets grow more difficult for them, this could well change.”
Respondents’ Acquisition Efforts
Across net worth and income levels, many respondents plan on spending up to 20 hours per week on their small business acquisition efforts. (20 hours per week equates to 2.86 hours per day.)
Respondents’ Acquisition Goals
Respondents are interested in acquiring businesses across a variety of sizes. 48.7% are interested in the $500k-$1M purchase price category, followed by $1M-$2.5M (45.7%) and $250k-$500k (37.1%). Notably, 94.8% hope to leverage Seller Financing for their next acquisition. 42.2% of respondents are looking to generate $100k-$250k of income from an acquisition, more than any other income category. For many respondents (but certainly not all), goals for income from an acquisition are near replacement levels for current income.
SMB Market Data From Live Oak Bank and Others
MARKET DATA
Small businesses’ expectations about their overall financial condition and the U.S. economy
Next 12 months net difference (improve — deteriorate)
MARKET DATA
Small business sales and profit net differences were negative in Q4
Past 12 months net difference (increased — decreased)
PERSPECTIVE
How Buying Power Could Change
“The silver tsunami of retirement-age Americans looking to transition their small business ownership into new hands will continue driving activity in the marketplace for the next 5-10 years. However, we see two elements hanging in the balance that could tip the marketplace into greater activity if they swing in the other direction. To start, seller valuations are still high, even in an elevated interest rate environment. The combination of elevated interest rates, and high valuations has had a negative impact on the buying power of acquirers. For Live Oak’s average deal involving a business with $1M in EBITDA, we estimate the average buyer now has 22% less borrowing power, which means if they could afford to purchase a $5M business before, now they can afford a business valued at $3.9M. This has led to deals being done with either more cash in from the buyer, or the seller holding a more substantial seller note. The Fed’s projected interest rate cuts have led to an influx of potential acquirers coming in from the sidelines and we expect more to come once rates tick down and sellers adjust the value of their companies in line with market conditions.”
MARKET DATA
Net difference capital expenditures ticked up, while hiring and excess cash reserves trended down
Past 12 months net difference (increased — decreased)
MARKET DATA
How small businesses intend to use excess cash reserves over the next 12 months
Seller DATA
IBBA: Seller’s market sentiment, by deal size Q4 ‘13-‘23
Seller DATA
IBBA: Owners who engaged in no formal planning prior to engagement to sell, by deal size Q4 ‘23
PERSPECTIVE
Adaptation in the Years Ahead
“The state of small business buyers reflects a mix of discerning optimism and strategic recalibration. Current market conditions are marked by opportunity and adaptation. With the youngest baby boomers eligible for full Social Security benefits in 2029, combined with their lion’s share of SMB ownership, there’s an estimated $10T in asset transfer on the horizon. While challenges persist, countless opportunities abound for gritty entrepreneurs with an eye for digital transformation and local knowledge, and many transactions remain an instrument of person-to-person interactions. Multi-time founders with deep tech backgrounds are now turning their sights to Main Street as well, bringing businesses into the 21st century with a focus on vertically integrated SaaS offerings consolidating traditionally fragmented workflows.
Increased awareness across the sector will continue to attract talent to provide solutions to businesses in need of catching up. In terms of SMB trends, we’re witnessing a surge in niche markets and specialized services, especially business services. From e-commerce to subscription-based models, small businesses are differentiating themselves through niche audiences and tailored offerings. As labor remains a top business cost, new technologies and outsourced talent have also redefined traditional models and opened new avenues for growth. Looking ahead, the outlook for small businesses remains promising — ‘once in a generation’ promising. Continued market awareness and aging owners, coupled with technological advancements, promise to fuel massive change. However, challenges such as sector consolidation by large investment firms and uninformed sellers loom on the horizon, underscoring the importance of deal access and strategic foresight in navigating the years ahead.”
Where You Can Learn More
About Contrarian Thinking
Contrarian Thinking is a fast-growing media, education, and investing company committed to providing the tools, knowledge, and connections needed to make small business ownership a reality for thousands of people.
Through our Contrarian Community, we help people grow as deal makers and learn how they can acquire a “boring business” that cashflows. We do this by providing educational resources, personalized mentorship, weekly expert speaker calls, facilitated events across the United States, a vibrant online community of buyers, resources, and tools, and an impactful annual 3-day conference in Austin, Texas.
We also have millions of followers and subscribers across media platforms. Our weekly newsletters are sent to hundreds of thousands, and our YouTube channel has garnered over 4M hours of watch time.
We’re also proud to operate two investment funds — Main Street Hold Co. and Contrarian Thinking Capital — that invest directly in small businesses and the technologies powering them and their growth.
For more information about our Founder, Codie Sanchez, read her bio.
About Live Oak Bank
Live Oak Bank is on a mission to be America’s small business bank.
We strive to help customers master their business and achieve their dreams. With a fusion of extraordinary service and expertise, our devoted team embraces a creative approach to solving problems and surpassing goals.
Live Oak is ready to support small business owners with customized loan products focused on long-term success. Our team of industry experts fully understands the nuances of small business and we want to invest in our customers because we know they’re ready to make an impact.
Beyond the traditional banking experience, we endeavor to be an asset to every one of our customers by turning obstacles into opportunities. Our team is ready to confidently guide customers through the lending process and craft a unique plan to help them thrive.
Live Oak Bancshares, Inc. (NYSE: LOB) is a financial holding company and parent company of Live Oak Bank. Live Oak Bancshares and its subsidiaries partner with businesses that share a groundbreaking focus on service and technology to redefine banking.
To learn more, visit liveoakbank.com.
