The Broken Market for Small Business Sales

Why Main Street is being left behind in M&A.

We’ve all heard the hype: small businesses seem to be everybody’s favourite new path to wealth. The “silver tsunami” promises to bring to market 12 million businesses over the next 10 to 15 years, and, with them, the promise of riches both for retiring business owners and eager business buyers. Despite the prevailing narrative, however, an estimated 70-85% of small businesses will fail to sell. In this piece, we break down some of the reasons why.

First, let’s examine the supply-side.

The U.S. Small Business Administration’s definition of “small” varies significantly by industry but loosely refers to businesses with less than $25 million in revenue or fewer than 850 employees. There are 33 million of these in the U.S., accounting for 99.9% of all US businesses, 44% of GDP, and 46% of employment. By all measures, the small business sector is the backbone of the U.S. economy.

Importantly, though, over 80% of small businesses are single-person operations. This points to perhaps the biggest problem business owners face when selling: most businesses simply aren’t sellable. Buyers are not looking to acquire a job; they’re looking to acquire a business.

In my opinion, a business must satisfy at least three criteria to be minimally sellable:

1. Survivability: The business must function without the owner’s daily involvement. If operations collapse when the owner steps away, there’s nothing to buy.

2. Transferability: Value must be tied to assets, systems, contracts, or a brand that can be passed to a new owner. Personal relationships, knowledge, and licenses do not transfer.

3. Profitability: Buyers need confidence that they can earn a fair return on their investment. That means clean books, reliable earnings, and sustainable margins.

The vast majority of small businesses fail at least one of these tests. Consider the case of a single-person plumbing service. Or a coaching practice with no documented systems. Or a beauty salon with several years of missing financials. None are readily sellable.

Then, let’s consider the demand-side.

Most institutional investors are largely uninterested in businesses below a certain earnings threshold. There are several reasons for this, but it principally comes down to the implicit “fixed” costs of deal sourcing and execution. 

The effort and complexity in completing deals don’t scale linearly with size, making investing in smaller businesses simply uneconomical. As such, small business buyers tend to skew towards individuals or other businesses in the same space.

There is, however, a growing hybrid class of buyer in the space: the “searcher.” Searchers will oftentimes raise institutional capital to fund their search for and subsequently acquire an attractive business.

The rise of these hybrid buyers is well documented, especially at Harvard Business School and in related circles. A 2024 Stanford study revealed a 46% increase in the number of search funds raised by first-time searchers between 2022 and 2023.

The problem is that searchers want only the very best. Business owners and intermediaries in the space will likely attest to hearing the following pitch all the time.

“Hi, my name is { Name }. I’m deeply passionate about helping small business owners retire while allowing them to preserve their legacy. I’m looking to acquire a business to own and operate …” 

It sounds promising until you read the fine print:

“... with at least $5M of revenue, 30%+ sustainable EBITDA margins, 80%+ recurring revenue and low customer concentration, operating in a non-cyclical industry.”

While these businesses exist, they account for only a tiny fraction of businesses. Only 2% of businesses generate more than $5M in revenue, and additional conditions diminish this number substantially. 

The bottom line is that most buyers aren’t looking for a typical small business. They’re looking for an outlier.

So where does that leave us?

For sellers, the lesson is clear: plan ahead, professionalise your operations, and build a business that can survive without you. In other words, make yourself redundant. Without preparation, the odds of a successful sale are slim.

For buyers, recognize that while it’s easy to set strict filters like revenue, margins, recurring revenue, concentration, the vast majority of businesses don’t fit neatly into that box, and everyone is looking for the businesses that do.

There may be an opportunity in bridging this gap: helping businesses become truly “sellable” and expanding what counts as “buyable.” Main Street drives nearly half the U.S. economy, but until both sides move closer together, the vast majority of these businesses will close instead of change hands.

Edouard Lyndt (MBA ‘25) is an M&A advisor at Sundance Financial, a New England-based firm that helps business owners and founders sell their companies. He has spent the past decade at the intersection of small businesses and finance, advising owners, investors, and buyers on transactions worth hundreds of millions. Originally from Australia, Edouard likes reading, cooking, and sport, and, at one point, enjoyed a brief stint as a professional fighter.