29 Statistics On The Role Of A Broker In Selling A Business

Not sure if you want to hire a broker to help you sell your business? 

Here are 29 statistics outlining the role of a business broker in selling a business.

Key Statistics

These statistics highlight critical factors affecting business sales, from transaction growth to challenges like high failure rates and economic pressures that impact successful deals.

1. Increase in Transactions: There was a 4.7% increase in closed business transactions in 2022 compared to 2021, and a notable 19% gain compared to 2020, reflecting recovery from COVID-19 impacts.
2. Deal Failures: 50% of buy-sell transactions fail during the due diligence process, underscoring a significant challenge in completing business sales.
3. Business Owner Impact of Rate Hikes: 53% of business owners reported negative impacts from rate hikes, showing the significant economic pressure on business finances.
4. Market Competition for Listings: Only 20% of businesses with a listing price under $1,000,000 sell, illustrating the difficulty of selling lower-priced businesses.
5. Small Business Failure Rate: 50% of all businesses fail within 5 years, with 82% citing cash flow issues, highlighting the precarious nature of small business sustainability.

Market Activity and Trends

Examining recent transaction trends provides insight into how economic fluctuations like inflation and rate hikes are shaping business sales in the current market.

6. Transaction Numbers: The number of transactions in 2022 was 9,054, compared to 8,647 in 2021. (1).
7. Quarterly Transaction Trends: Transactions increased by 27% and 14% in the first and second quarters of 2022 but dropped by 2% and 12.7% in the third and fourth quarters due to inflation and interest rate hikes. (1.)

Broker Performance

Broker activity and the average sales prices reflect how the business sale landscape is evolving, especially under the strain of inflation and market shifts.

8. Broker Activity: 33% of brokers reported closing a few more deals in 2022, while 22% reported closing many more deals compared to 2021. (1.)
9. Average Sales Price: The average sales price of businesses dropped by 3% in 2022 due to inflation and rising interest rates. (1.)
10. Median Revenue: The median revenue of businesses declined by 3% in 2022, from $665,107 to $650,000. (1.)

Business Valuation and Pricing

As inflation and interest rates affect valuations, brokers play a vital role in helping sellers and buyers negotiate fair prices in a fluctuating market.

11. Valuation Impact: Inflation and interest rate hikes led to lower business valuations and more willingness from sellers to negotiate lower prices. (1.)
12. Valuation Services: Determining the value of a business is the most critical step in selling and purchasing, and it is a key service provided by business brokers. (2.)

Challenges Faced by Business Owners

Business owners face several challenges, from supply chain issues to economic loan repayments, which impact their operations and decision-making around sales.

13. Supply Chain Issues: Business owners continued to face supply chain issues that negatively impacted their operations. (1.)
14. Economic Injury Disaster Loans: 26% of business owners reported issues paying back economic injury disaster loans taken out due to COVID. (1.)

Industry Statistics

This section outlines the scale and growth of the business brokerage industry, providing context on broker population trends and industry revenue.

15. Number of Business Brokers: There are 6,184 businesses in the Business Brokers industry in the United States, growing at a CAGR of 2.2% between 2019 and 2024. (2.)
16. Industry Revenue: The market size of the Business Brokers industry in the US is estimated to be $1.8 billion in 2024, despite a decline at a CAGR of 2.5% over the past five years. (2.)

Success Rates and Challenges

With high transaction failure rates and external economic factors at play, this section highlights the difficulties brokers and business owners encounter in closing deals.

17. Success Rate Measurement: Measuring a business broker’s success rate is inherently difficult due to various factors beyond the broker’s control, such as seller actions or external economic conditions. (4.)
18. Cancellations Due to COVID: 12% of business sale transactions were cancelled due to the impact of the COVID-19 pandemic. (3.)

Time to Sell a Business

Business sales typically take between 6 to 9 months, emphasizing the need for strategic planning and patience throughout the sale process.

19. Average Time to Sell: It takes an average of 6 to 9 months to sell a business. (3.)

Buyer and Seller Dynamics

Buyer interest and seller concerns are shaped by inflation and interest rates, revealing key dynamics that influence the business sales market.

20. Buyer Demand: More buyers are entering the market, contributing to increased activity, but interest rates are weeding out some potential buyers. (1.)
21. Seller Concerns: Business owners are concerned about lost sales, customers, and the impact of rate hikes and inflation. (1.)

Market Competition

High competition in the business-for-sale market, especially for lower-priced listings, reflects the challenges of selling in a crowded field.

22. Number of Businesses for Sale: There are approximately 45,000 active businesses for sale globally, creating significant competition. (3.)
23. Higher Priced Listings: Less than one in three businesses listed with a selling price over $2,500,000 ever sell. (3.)

Financial Aspects

This section looks at financial details like commission rates and cash flow multiples, which are central to evaluating business sales and determining value.

24. Commission Rates: The typical commission rate for businesses priced under a million dollars is 8% to 12%. (3.)
25. Cash Flow Multiples: The average cash flow multiple for businesses sold in 2020 was 2.28. (3.)

Regulatory and Licensing

Licensing requirements across different states add complexity for brokers, impacting where and how they can operate within the U.S.

26. Licensing Requirements: 34% of states in the U.S. require a business broker to be licensed. (3.)

Demographics and Ownership

Ownership statistics show the influence of Baby Boomers and the unique challenges family-owned businesses face in sustaining ownership through generations.

27. Business Ownership: 41% of U.S. small businesses are owned by Baby Boomers. (3.)
28. Family-Owned Businesses: Only 30% of family-owned businesses survive the second generation of ownership. (3.)

General Business Statistics

Business owners’ net worths are heavily tied to their companies, underscoring the financial stakes involved in the sale of a business.

29. Business Owner Net Worth: 90% of business owners’ net worth is tied up in their business. (3.)

Conclusion

These statistics paint a detailed picture of the current business sales landscape, emphasizing the impact of economic forces, competition, and regulatory challenges on brokers and business owners alike. 

As transaction numbers fluctuate and valuations face pressure from inflation and interest rates, brokers play a crucial role in guiding successful sales. 

Understanding these trends is essential for both buyers and sellers to navigate the complexities of the market and make informed, strategic decisions.

Sources:

1. https://businessbrokeragepress.com/2023/01/bizbuysell-insight-report-for-2022/
2. https://www.ibisworld.com/united-states/market-research-reports/business-brokers-industry/
3. https://rockymountainba.com/the-ultimate-list-of-statistics-for-selling-a-business/
4. https://morganandwestfield.com/knowledge/can-a-business-brokers-success-rate-be-accurately-measured/
5. https://www.nar.realtor/research-and-statistics/quick-real-estate-statistics
6. https://www.nar.realtor/magazine/broker-news/network/statistics-to-consider-when-growing-your-brokerage
7. https://www.businessresearchinsights.com/market-reports/business-broker-services-market-112868
8. https://www.bls.gov/ooh/sales/real-estate-brokers-and-sales-agents.htm