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Fourth Quarter 2004

Today’s Business Scene Is Provided By:

Alpine Business Brokers
Call us today at 801.224.8848 or e-mail us at sales@alpinebusinessbrokers.com


How Many Businesses Are There in the U.S.?
 
Any attempt to pin down the number of privately-held businesses is an impossible task. In a 2003 interview with Hector Barreto, then the Administrator of the SBA, he said, “There are between 23 million and 25 million small businesses in the U.S.” Apparently, even the SBA doesn’t have a handle on exactly how many businesses there are.

According to U.S. Government data from 2001 (the latest available), there were 5,657,774 fi rms with a payroll. This fi gure includes 703,774 fi rms with no employees, but that apparently had the owner on a payroll status. If this fi gure is subtracted from the total, it leaves 4,954,000 fi rms with one or more employees. There is another piece of data that is interesting – the 5,657,774 fi rms represent 7,095,302 establish–ments. In other words, the 5,657,774 actually have an additional 1,437,528 outlets, branches, etc.

Recent data from www.bizstats.com, based on government fi gures, shows that there are 25,007,501 (25 million rounded) businesses fi ling income tax returns. The breakdown, along with legal structure, is as follows:

 
legal structure # businesses % of businesses
Sole Proprietorships
17,904,731
71.5%
Partnerships
1,338,796
5.4%
Limited Liability Companies
718,704
2.9%
Coprorations
5,045,270
20.2%
 
The interesting thing about the number of businesses in the U.S. is that it can be almost anything that anyone wants it to be. Some people or companies may tell the world that there are over 25 million businesses, and others will say that there are only 5.6 million. They will both be right.

BizStats introduces its chart titled Total Number of US Businesses with the following statement, “There are over 24 million business entities filing income tax returns (a number that is growing about 2% annually), but nearly 60% reported annual receipts of less than $25,000. This includes self-employed individuals such as 650,000 real estate agents, over 600,000 nannies, and close to one million direct sales ventures such as Amway and Mary Kay Cosmetics, as well as many part-time and hobby ventures. Consequently, what constitutes a ‘real’ business is ultimately in the eyes of the beholder.”

 
Number of US Businesses by Number of Employees
 
Number of employees number of firms average number of employees % of all employer firms % of all total employment
Less than 5
3,389,161
1.7
60.4%
5.1%
5-9
1,012,954
6.6
18.1%
6.0%
10-19
605,693
1304
10.8%
7.3%
20-99
501,848
39.3
8.9%
17.8%
100-499
81,347
192.2
1.5%
14.1%
more than 500
16,740
3,284
.3%
49.7%
 

Note: All businesses in the Less than 5 category have at least one employee. Information, except Average Number of Employees, is from BizStats.com

 
It is interesting to divide the number of employees by the number of firms in each category. In the Less than 5 category, the average number of employees is actually 1.7 employees – so approximately 60 percent of all businesses with 5 or less employees actually only have 1.7. That’s a lot less than five. In fact, the average number of employees is considerably less than the numbers used in the category itself. It’s only when you get to the more than 500 employee category that the number really escalates: the average number of employees in this category is approximately 3,300.
How Much Do They Make?
HERE IS ONE BREAKDOWN OF ANNUAL REVENUE BY NUMBER OF EMPLOYEES
 
How Many Sell?
 
Category # businesses # for sale #that sell
General Business Brokerage
4.9 million
998,000
206,500
The Larger Business
566,000
113,000
37,500
The Mid-Sized Company
90,000
9,000
5,600
The Large Company
33,600
3,360
2,000
 
Note: All figures are rounded and totals may be slightly more or less than 100 percent. They are estimates only. The term "sell" refers to an actual sale, merger, or any major change in ownership.
 
For anyone who wants to sell their business, or is in the process, the numbers above may be discouraging. Reliable sources report that approximately 20% of small businesses are for sale at any one time. Only about 20% to 25% of these will actually sell. Even when considering firms that are considered mid-sized (businesses with sales of $10 to $50 million and 100 to 500 employees) – only 50% will sell. Why are the percentages so low?
 
Many sellers “test the waters” only to discover that the price they thought appropriate for their business is not in the ballpark, so they withdraw it from sale. Other sellers soon realize that they will be unemployed after they sell, and then change their minds about selling. Still others, who elected to solve some personal problem, solve it and withdraw their business from the marketplace. Here are some of the other major reasons:
 
  • Sellers overprice their business. It’s only natural to try to get as much as possible for one’s business. After all, it most likely represents a good portion of the seller’s net worth, and a good portion of his or her life’s work. Every business on the market is competing with every other business for sale. Today’s buyer is educated and usually business-savvy. There is so much pricing data available that buyers know when a business is overpriced.

  • Sellers are not willing to finance a portion of the selling price. Since there is very little outside financing available, in many cases the seller will be called upon to assist in the financing. Studies have shown that sellers who are willing to finance a portion of the purchase price will receive a higher price.

  • Sellers must be willing to negotiate. Sellers who really aren’t serious about selling will try to stand firm - they don’t want to sell badly enough to see a prospective buyer’s viewpoint. Whether it’s price, terms, structure of the deal - a seller must be willing to give up something.

  • Sellers, too often, listen to well-meaning outside relatives, friends or advisors, who really don’t have sufficient knowledge of the selling process. Sellers who won’t use a professional business broker/intermediary are at a disadvantage. These outside professionals know the marketplace and greatly assist in finding the right buyer. They are a “value-added” and will more than justify their fee. The seller who represents himself or herself will almost never get the price that a business broker professional will obtain.

  • Sellers who don’t have all of their records, information and pending issues up-to-date and readily available will have great difficulty in selling their business.
 
Who Is Today's Business Buyer?
 
A survey conducted by The California Association of Business Brokers (CABB) revealed that the average fi rst-time business buyer is a corporate professional in his or her mid-40s. The survey data also revealed that the youngest buyer was 24 years old, while the oldest was 68 years old. Other information reported that there has been a signifi cant increase in fi rst-time buyers leveraging $75,000 to $1,000,000 in home equity in order to purchase a business. Many of these buyers, according to the survey, left the corporate world and wanted to buy their own business to have more control over their destiny – and ultimately their own retirement savings.
Contact us today for more information on today's business buyer!
 
 
If you are considering selling your business in the next six months, we would welcome the opportunity to discuss this process with you. We can advise you on the best strategies to follow to endure that your business does sell and for the highest price possible. CONTACT US TODAY!
 
 
SBA UPDATE

The SBA approved $16.9 billion in loans and venture-capital financing for small businesses in fiscal year 2003. Loans totaled 74,169, a 50- year record and an increase of 29 percent from the previous year. The SBA approved a 50-year record 67,300 loan guaranties for fiscal year 2003, a total 30 percent higher than the previous year. Source: “Big Ideas from Small Business,” The New York Times, May 19, 2004

Contact us for more
information on SBA financing
HERE IS SOME INTERESTING INFORMATION BASED ON
THE APPROXIMATE 25 MILLION BUSINESS ENTITIES:
  • Approximately 54% of all businesses gross less than $25,000 annually
  • Approximately 22% of all businesses gross $100,000 or more. After deducting for any
    expenses and/or cost of goods, 78%, most likely, do not make a living wage for the owner.
  • Only about 5% of all businesses have annual sales or revenues in excess of $1 million.
  • Just to take this a bit further, only about 5,500,000 businesses have annual
    sales of over $100,000.
 

Women In Business

According to Melanie Sabelaus, the deputy administrator of the Small Business Administration (SBA), women “are the economic powerhouse of the 21st century.” “When it comes to entrepreneurship in job creation, it is becoming a woman’s world,” Ms. Sabelaus said. “There are 10.1 million women in small business in America. Women are starting businesses at twice the rate of men,and staying in business longer. Women own close to 40% of all U.S. businesses and are generating $3.6 trillion in revenue. That’s more than the G.D.P. of Germany. One in five Americans goes to work each morning and works for a woman-owned business."

 
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