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According to a newly published study by BizBuySell.com, the Internet marketplace for business buyers and sellers, businesses spend more than $35.5 billion annually on suppliers and vendors during business-for-sale transitions.
BizBuySell.com also found that an average of 83 percent of buyers and 33 percent of sellers of small businesses indicated that they either increased spending, added products or services, or switched vendors as part of the ownership transition process.
“These numbers show how important the substantial investments business owners make during an ownership transition are to the economy,” says Curtis Kroeker, general manager of BizBuySell.com. “Prior to selling, owners usually invest in their business to support a higher asking price while post-sale, owners spend to drive business performance and get the business running the way they want.”
The total expenditure numbers are based off BizBuySell.com and U.S. governmental data which indicate roughly 500,000 business change hands each year.
Business Transitions Create Significant Opportunities for Vendors
The spending that takes place during a business transition presents a unique opportunity for vendors and suppliers to add new business. According to BizBuySell survey respondents, 53 percent of new business owners added a new provider or switched to a new provider entirely and an additional 15 percent added or switched to new products after buying a business. Finally, more than 15 percent of business buyers increased the services provided by their existing vendor.
In addition, nearly 20 percent of respondents who sold their businesses said they added or switched to a new supplier prior to selling, while an additional 13 percent of seller respondents indicated that they moved to a different product, tacked on additional products, or increased services as part of existing vendor relationship prior to selling.
BizBuySell.com estimates that business buyers in aggregate spend more than $26 billion on supplier services and products during the first year of business ownership. Additionally, business sellers spend about $9.5 billion more each year in total on these services and products to help prepare their businesses for sale.
These vendor adjustments, driven by changes in business ownership, create substantial new account selling opportunities for service providers, as well as an opportunity to expand "share of wallet" with existing customers.
Sellers and Buyers Spend the Most on Accounting and HR Services
The largest investment area for sellers readying their business for sale was accounting and HR services, averaging more than $3,750 per business. In aggregate, that represents almost $1.9 billion in opportunities each year for providers of accounting and HR services.
Business sellers also provide significant revenue generation opportunities to companies in financial services ($1.5 billion), marketing and advertising ($1.2 billion), and office supplies ($1.1 billion).
For business buyers, accounting and HR services led again in total opportunity, with an estimated reported yearly average investment of $7,610 per business, or $3.8 billion in aggregate. Marketing and advertising ($3.5 billion), insurance ($3.5 billion), computer hardware ($2.4 billion), and office supplies ($2.1 billion) round out the top five spending areas for small business buyers.
Insurance Switches Are the Most Common Change for Small Business Buyers
Survey respondents indicated they were most likely to switch their insurance provider or add additional policies after purchasing a business. Over 69 percent of respondents indicated that they added a new insurance provider or switched insurance providers in the year following business acquisition.
An additional 16 percent added or switched to new insurance products after buying a business and nearly 15 percent of business buyers extended the coverage provided by their existing policies. In total, BizBuySell.com estimates that business buyers represent more than a $3.4 billion annual revenue opportunity for the insurance industry.
Insurance expenditures made by selling business owners represent a smaller opportunity ($460 million) but the research reveals that sellers either add or switch to a new supplier prior to selling 21 percent of the time.
Business Buyers Spend More Than Start-Ups in the First Year of Operations
According to BizBuySell.com's survey results, the average business buyer spends $95,878 during the first year of business ownership, 25 percent more than the $76,704 spent by owners in the first year after launching a business from scratch.
“There’s no doubt that newly launched businesses provide an excellent opportunity for service providers,” Kroeker says. “However, this survey reveals a new opportunity that has largely flown under the radar–that owners selling and, especially, those buying established small businesses are a huge target market.
“It’s a bit counterintuitive, but it makes sense. In most cases, someone who has recently purchased a business has more capital available, more concrete needs, and is managing a much larger business than his counterpart starting a business from scratch. That’s definitely something all providers should keep in mind when pursuing new sales.”