What Is the Difference Between a Main Street vs. Middle Market Business?

If you’re considering buying or selling a business, you’ve probably heard the terms Main Street and Middle Market. Although small and medium-sized business owners rarely use these terms, business brokers, investment bankers, and other industry experts use them to identify a business's size and value. The category a business falls under can impact the price for the owner and potential buyer.

What Is a Main Street Business?

A Main Street business is a small, locally focused company that serves the needs of a specific community. These businesses are the type you likely visit most often in your daily life. You might pop into the local bakery for your morning coffee and croissant, grab Vietnamese take-out after a long day at work, and drop your shirts off at the dry cleaners on Friday afternoon.

Main Street companies, frequently called “mom and pop” shops, are essentially the opposite of ‘Wall Street’ and are generally easy to spot.

• Annual revenue is often less than $2 million
• They operate with a small team
• They tend to focus on the needs of the people within a small geographic area
• They strive to create jobs, contribute to the local economy, and build community while also maintaining profitability and ensuring the business’s success

Buying a Main Street business comes with both challenges and rewards. These businesses rely heavily on the support of the local community, which means that new ownership may need to work hard to maintain customer loyalty, especially if changes like a new menu or product offerings are introduced. However, for entrepreneurs who are passionate about serving their community and building strong local relationships, owning a Main Street business can be a fulfilling and potentially profitable venture.

What Is a Middle Market Business?

A Middle Market business is a company that operates on a larger scale than a Main Street business, with annual revenues typically ranging from $5 million to $1 billion. While they may not be household names like Patagonia or Nike, they play a pivotal role in the economy. These businesses are classified into three categories based on annual revenue:

• Lower Middle Market
• Middle Market
• Upper Middle Market

Middle Market businesses are known for their stability and growth potential. They are typically run by experienced management teams and have a larger employee base, which contributes to their ability to weather market fluctuations and maintain consistent performance. These factors make Middle Market businesses attractive acquisition targets for strategic buyers, such as private equity groups, mergers and acquisitions (M&A) advisors, and investment firms.

While Main Street transactions are typically asset sales and sold within a local market, Middle Market companies often have a broader reach and may attract interest from buyers outside their immediate geographic area. This expanded pool of potential buyers can lead to more competitive offers and better terms for sellers.

Financing Strategies: Main Street vs. Middle Market

Main Street businesses often start with self-financing, loans from family and friends, bank loans, or Small Business Administration (SBA) loans. These funding sources are more accessible and suited for smaller-scale needs.

Middle Market transactions, on the other hand, often attract private equity investments from wealthy individuals or firms looking for high returns. Some Middle Market companies might even go public, offering shares to raise more money. This shows that Middle Market businesses aim for larger-scale growth and expansion.

Planning for the Future

If you’re an owner considering selling your business, planning for the future is essential. Whether you’re running a Main Street business or a Middle Market enterprise, you’ll need to navigate succession planning, valuation, setting an asking price, identifying buyers, and marketing your business for sale.

Every business owner should consider the future of their business—not just about growing it, but also about what comes next—whether it's handing over the reins to someone else or selling the company. Here's what to consider when planning for the future of your Main Street or Middle Market business.

Succession Planning

• For Main Street businesses, succession planning often involves transitioning ownership to a family member, long-time employee, or someone within the local community who understands the business's unique role and value.
• Middle Market businesses may have a more formal succession plan, which could include selling to a strategic buyer, such as a competitor or a private equity firm, or promoting from within the existing management team.

Valuation

• Main Street businesses often use Seller's Discretionary Earnings (SDE) to determine their value. This method takes into account the business's profits, including the owner's compensation, to arrive at a fair market value.
• Middle Market businesses typically use Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) as a valuation metric. This approach focuses on the company's overall financial performance and is more suitable for larger, more complex businesses.

Setting an Asking Price

• For Main Street businesses, the asking price should reflect the business's local reputation, customer loyalty, and growth potential within the community.
• Middle Market businesses should set an asking price that accounts for their market position, competitive advantages, and potential for scalability and expansion.

Identifying Buyers

• Main Street business owners should focus on finding buyers who are passionate about serving the local community and maintaining the business's unique character and relationships.
• Middle Market businesses should seek out strategic buyers who have the resources and expertise to take the company to the next level, such as private equity firms, industry competitors, or larger corporations looking to expand their portfolio.

Marketing the Business for Sale

• Main Street businesses may find success by leveraging local networks, such as community business associations, chambers of commerce, and word-of-mouth referrals, and online marketplaces, like BizQuest and BizBuySell.
• Middle Market businesses should work with M&A advisors, investment bankers, and business brokers who have experience marketing larger, more complex businesses to a broader pool of potential buyers.
• By addressing how being a Main Street or Middle Market business impacts each aspect of planning for the future, these revised subsections provide more targeted and relevant information for business owners and potential buyers alike.

Should You Use a Business Broker or Team of Advisors?

The decision to use a business broker or a team of advisors depends on the size and complexity of your business. Main Street business owners may benefit from working with a business broker who understands the local market and can provide personalized support. Middle Market businesses may require a team of M&A advisors, including financial analysts, legal experts, and industry specialists, to navigate complex deal structures and ensure proper valuation.

Regardless of which path you choose, understanding your business's value is essential. This is where the BizQuest valuation calculator comes in handy. It can help you get a clear picture of what your business is worth, whether it's a local Main Street shop or a sprawling Middle Market enterprise.

Understanding the difference between Main Street and Middle Market businesses is crucial when buying or selling a company. By recognizing the characteristics, financing strategies, and planning considerations for each type of business, owners and potential buyers can make informed decisions and ensure a successful transition.