A profitable company can still fail a buyer’s test

McKinsey estimates that 510,000 US firms with fewer than 500 employees exited in 2022¹: 92% closed, 5% sold and 3% passed to new owners¹, often family. Read quickly, that sounds like a country failing to find buyers for sound companies. The same report says otherwise. It judges only 6 to 13% of closures avoidable²2McKinsey, February 26, 2026, with footnote 4. Estimated from stated closure reasons, not firm financials. Leaves out retirement, so it may run low. 28,000 to 61,000 and 25,500 are our arithmetic on its 2022 figures. Read the source.

Set that range against McKinsey’s 2022 count and a more useful number appears: roughly 28,000 to 61,000 avoidable closures a year, against about 25,500 sales², both our arithmetic. The band of companies that could have gone either way is about the size of the whole estimated sale market. It is also the only part of McKinsey’s 92% that a decision could have changed, and much of what decides it is settled long before a listing.

What follows separates that band from the closures that were never in play, then sets out what a serious buyer tests first.

Most closures were never sale candidates

The Census Bureau counted 523,958 employer-firm deaths in 2023⁵5US Census Bureau, Business Dynamics Statistics, 2023 release. All US employer firms, 12 months to March 2023. Actual counts; shares are our arithmetic. No data on profit, owner age or reason for closing. Read the source. By our arithmetic, 89.6% had one to four employees⁵ and 49.3% were five years old or younger⁶6US Census Bureau, Business Dynamics Statistics, 2023 release, firm age table. Rates and shares are our calculation; Census does not publish these rates. Firms 26 or more years old include those born before 1977. Read the source. Census does not count a sale or merger as a death⁵, so these are real shutdowns, and half of them are too young to be long-held companies.

Profit points the same way, with a caveat. Gallup asked 1,264 US owners in fall 2024⁷7Gallup, March 24, 2025. 1,264 US adults who work mainly on a business they own, fielded September 20 to October 28, 2024. Profit is for 2023. Stated plans, not outcomes; correlation only. Funded by JPMorganChase and Kauffman. Read the source about their plans for stepping away. Just 11% of employer owners expect to close⁷, a long way from McKinsey’s 92%, though the groups differ. Those planning to sell reported median 2023 profit of $100,000, against $20,000 for those planning to close⁷. These are stated plans, and we found no dataset on what closed firms actually earned.

McKinsey’s band rests on stated reasons too: about 6% of closures follow an owner’s illness or death, and another 7% an exit for a new venture². No firm financials enter it. It leaves out retirement², which was 21.9% of stated reasons in 2015, up from 12.6% in 2007⁸8US Small Business Administration, Office of Advocacy, May 2018, from Census surveys. Employer firms that closed in 2015 and 2007; stated reasons, multiple answers allowed. Old data, the newest breakdown we could read. Read the source, so the true figure may run higher. Low sales or cash flow led that 2015 list at 25.0%⁸. Read the range as an order of magnitude.

The big totals need the same care. McKinsey projects about six million exits from 2026 to 2035, up from about 4.5 million in the prior decade⁹9McKinsey, February 26, 2026. Projected exits of US firms under 500 employees, 2026 to 2035, of every kind. Value is modelled on revenue multiples; Exhibit 5 totals $3,378 billion. One in six is our arithmetic. Read the source, closures included. It calls more than one million firms viable candidates for sale⁹, roughly one in six. Its “up to $5 trillion”⁹ is tied to firms “changing hands, transferring within families, or closing,”⁹ and an exhibit in the same report totals about $3.4 trillion⁹. A deck that calls any of this a for-sale pipeline has misread it.

For most firms that exit, closing is the ordinary end, and a closure count says little about a lost sale. The open question concerns companies with real earnings that still fail to change hands.

Closures among older firms have climbed for a decade

One series does support the worry about established companies. Census counts of deaths among firms 26 or more years old rose from 40,407 in 2012 to 71,002 in 2023⁶. We divided those by the number of such firms each year, a rate Census does not publish, and got 4.10% in 2012 and 6.12% in 2023⁶.

The 2023 reading was a jump at every age, so the fairer comparison stops a year earlier: older firms went from 4.10% to 5.60%, all firms from 7.53% to 8.12%⁶. That does not prove retirement is the cause, since firm age is a loose proxy for owner age.

Reported sales have not risen to meet it. Brokers voluntarily told BizBuySell of 10,312 sales in 2018¹⁰10BizBuySell Insight Report Q4 2018. US closed deals reported voluntarily by brokers, a partial count, as first published. Read the source and about 9,574 in 2025¹¹11BizBuySell Insight Report Q4 2025. Reported voluntarily by brokers. About 9,574 is our sum of its 2025 sector table and may predate a revision; its text says flat. The 12-to-18-month line is broker opinion, not a measurement. Read the source, the second figure our sum of its sector table, then 2,132 in Q3 2026, down 7% from a year earlier¹²12BizBuySell release on its Q3 2026 Insight Report, October 20, 2026, via Business Wire. US deals reported voluntarily by brokers; the year-over-year change uses revised 2025 data. Quotes BizBuySell president Bob House. Read the source. BizBuySell sells listings and so gains from a wave story, yet it says the “long-anticipated wave of retiring business owners has yet to fully materialize.”¹³13BizBuySell Insight Report Q2 2026. Surveys of US owners and buyers, sample undisclosed, self-reported. BizBuySell sells listings. The shortage quote is from broker Matt Coletta of M&A Business Advisors, an interested party. Read the source

Owner age tells the same slow story. In 2023, 51.3% of owners of US employer firms were 55 or older¹⁴14US Census Bureau, Annual Business Survey, reference year 2023 and earlier tables. Owners, not firms, of US respondent employer firms; 4,208,231 reported an age for 2023. Nonemployers excluded. Combined shares are our sum. Read the source, a share that has held at 51% to 52% since 2019¹⁴, while those 65 or over rose from 20.1% in 2017 to 23.1%¹⁴. Doug Lepisto, a Western Michigan University business professor, prefers “silver tide”¹⁵15Bridge Michigan, Justin A. Hinkley, December 17, 2025, quoting Doug Lepisto, a Western Michigan University business professor and co-founder of an investment firm. Secondary reporting of his view. Secondary report. Read the source to tsunami, because tides are expected and unnoticed, “but they change the shoreline.”¹⁵

An owner timing a sale to beat a flood of listings has little here to go on. A lender with long-held companies on its books faces a slow shift in the odds, the kind of thing an annual review can ask about.

The shortage of buyers sits at the small end

“No buyer” is only part of the story. In BizBuySell’s Q3 2026 survey of its own audience, 31% of buyers said finding a quality business holds them back, ahead of financing at 15% and asking prices at 13%¹⁶16BizBuySell Insight Report Q3 2026, October 20, 2026. US closed deals reported voluntarily by brokers, plus surveys of its own audience, sample undisclosed and self-selected. BizBuySell sells listings. Read November 5, 2026. Read the source. A Q2 2026 survey of brokers and advisors found 87% of deals over $5 million drew at least three offers¹⁷17IBBA and M&A Source, Market Pulse Q2 2026, August 25, 2026. 255 brokers and advisors, 181 completed US deals up to $50M, surveyed July 1-15, 2026. Completed sales only. The trade body has an interest in owners hiring advisors. Read the source. One broker quoted by BizBuySell describes “somewhat of a shortage of high-quality, sellable businesses with verifiable books.”¹³

Smaller deals look different. The same advisor survey says deals under $500,000 “frequently receive just one or two offers.”¹⁷ McKinsey says demand “thins dramatically” below $5 million in enterprise value¹⁸18McKinsey, February 26, 2026, report text and Exhibit 6. Projected exits, 2026 to 2035; the base for nearly 80% is ambiguous. Median deal sizes come from recorded deals and lean large. The banking official is unnamed. Read the source and places nearly 80% of projected exits among firms valued under $2 million¹⁸. Pepperdine’s 49 surveyed brokers report terminated listings most often in the smaller size bands¹⁹19Pepperdine Graziadio, 2026 Private Capital Markets Report, business broker section, revised June 22, 2026. 49 brokers’ own estimates. Small sample, skewed to larger deals, not Main Street. Read the source. A community development banking official told McKinsey of “viable businesses with real cash flow”¹⁸ that fail to transfer because “the financing gap can’t be bridged.”¹⁸

A sale at 2.30x cash flow¹⁶ pays an owner a little over two years of that cash flow, by our reading. Some may reasonably prefer to keep running and then close, though no source tests the idea. An owner below that line can fairly ask whether a sale pays for the effort, and a lender reading a small borrower’s exit plan can ask the same.

The alternatives thin out at the same size. The National Center for Employee Ownership, which advocates for it, counts 309 new employee stock ownership plans in 2023²⁰20National Center for Employee Ownership, numbers page updated January 2026, from US Labor Department Form 5500 filings for plan year 2023. Actual filings, about a two-year lag. NCEO advocates employee ownership. Read the source, and its rule of thumb is at least 15 to 20 employees and generally a minimum of $125,000 in initial costs²¹21National Center for Employee Ownership, How Small Is Too Small for an ESOP? The rule of thumb is NCEO’s judgment, and another NCEO page says no set number defines too small. NCEO advocates employee ownership. Read the source. By our arithmetic, 98.4% of 2023 firm deaths had fewer than 20 employees⁵. McKinsey’s recorded management purchases carry a median deal of $126 million¹⁸, and we found no public count of them.

Earning money and being sellable are different tests

Pepperdine’s 2026 Private Capital Markets Report holds the best primary evidence on why sales fail. Its 43 investment bankers said 34% of engagements ended with no deal²²22Pepperdine Graziadio, 2026 Private Capital Markets Report, revised June 22, 2026. 43 investment bankers’ own estimates. Small sample, skewed to larger deals, not Main Street. The grouping of causes is ours. Read the source. The sample skews to larger deals. For Main Street we found no reliable sell-through rate at all, and the often-repeated claim that only 20 to 30% of listings sell²³23Exit Planning Institute web page. States the figure with no source, and it is not in either EPI report we read. Cited only to show that the claim cannot be traced. Secondary report. Read the source traces to no source we could find.

By our grouping, 36% of the causes concern the business itself and 34% concern expectations²², with seller misrepresentation at 5%²². So a third of the failures came down to what people wanted, which an owner can test early and few do. In BizBuySell’s Q2 2026 survey, 14% of owners had a professional valuation and 35% had no idea what the business was worth¹³. It found a second mismatch: 90% of buyers expect seller financing, and 29% of owners plan to offer it¹³.

The harder problem is earnings that leave with the owner. An NBER study of US tax data found pass-through profit fell by three-quarters after owner retirement or premature death²⁴24NBER Working Paper 25442, Smith, Yagan, Zidar and Zwick, revised June 2019. US tax data, 2001 to 2014. High-earning owners, mainly S-corporations; retirement is inferred. Not a measure of Main Street firms. Read the source. The owners are high earners and the data ends in 2014. Some of the drop may also be a replacement manager’s salary moving from profit to wages. It still explains a buyer’s caution. Gallup, writing about firms with no employees, names the same thing: “reliance on the individual human capital of the owner.”⁷

Earnings that leave with the owner are earnings a buyer cannot pay for.

Private equity respondents in Pepperdine’s report rate customer concentrations 4.38 of 5 and the management team 4.21²⁵25Pepperdine Graziadio, 2026 Private Capital Markets Report, Table 44. Private equity respondents rate risks from 1 to 5; 38 in the survey, number answering this table not stated. Opinion. These buyers mainly work upmarket. Read the source, the second the nearest proxy for owner dependence. They mostly buy upmarket, and we found no source that ranks these worries for Main Street buyers. BizBuySell’s president gives a similar list all the same: “reliable cash flow, clean financials, limited owner dependence, and a clear path to financing.”¹²

The record a buyer’s lender reads starts three years back

The firmest public statement of these tests is a rule. For purchases financed under the Small Business Administration’s 7(a) program, from October 1, 2026²⁶26US Small Business Administration, SOP 50 10 8.1, Appendix 15, effective October 1, 2026. SBA 7(a)-financed purchases only, with exceptions. Described here as what gets verified. Not a loan offer or advice. Read the source, the lender must work from the three most recent year-ends²⁶ and show debt service coverage of 1.25 on a first-time acquisition²⁶. It must check the numbers behind the valuation against the seller’s IRS transcripts²⁶. Above $350,000 the valuation must generally be independent²⁶, and one prepared for the seller does not count²⁶.

At $3 million and up, a quality-of-earnings report must assess customer concentration²⁶. The seller may stay only as a consultant, for up to 24 months²⁶, which puts a date on owner dependence. The rule covers only these financed deals, and we describe it only as a list of what gets verified. The SBA does say ownership changes have “grown to be among the largest categories of 7(a) lending.”²⁶

That changes the clock. A BizBuySell report puts preparation at 12 to 18 months before going to market¹¹, a broker’s opinion, and a Main Street sale then typically takes six to 10 months from engagement to close¹⁷. A three-year look-back means the record this buyer’s lender reads begins about three years before a sale, by our inference from the rule. Few sellers run on that clock: between 60% and 90% had under a year of exit planning or none¹⁷, and Pepperdine’s brokers report 64% with no formal planning¹⁹.

Some companies will not sell at any sensible price, and closing can be the right end for them. For those in between, the useful step is to put a buyer’s questions to the company before a buyer does. The test below is for a planning meeting, or a lender’s next look at a long-held borrower.

The record a buyer’s lender reads is written years before the owner decides to sell.