BizBuySell's Insight Report tracks and analyzes business-for-sale transactions and sentiment of business owners, buyers, and brokers. The Report for the second quarter is out, and while the market for small business sales continues to be strong, interest rate hikes and inflation are creating headwinds.
Although small business acquisitions dropped 3% in Q2 2022 from Q1, sales increased 14% year-over-year from 2021.The report notes that although the median sales price declined by 9% from Q1, this is only 2% lower than prices in Q2 2021. The acquisition market is still strong and outperforming pre-pandemic levels. There are three main factors that are currently impacting the market, which may also provide opportunities for both buyers and sellers.
- The Sales Price for Small Businesses are Lower to Account for Higher Cost of Capital
Although the overall financial position of small businesses is improving, the downward pressure on sales prices is due to higher interest rates, which impacts the overall cashflow to the buyer. Banks are also tightening credit, so buyers are having a harder time obtaining the financing they need to close the transaction, We have seen that ourselves, as we recently closed a deal where the buyer couldn’t get a bank loan, so the seller was willing to seller finance the amount the borrower needed to close – while paying close to the asking price.
- Sellers are More Realistic About Valuations Due to Economic Factors
According to the Report, “40% of owners believe they would receive a higher price had they sold last year, mostly pointing to buyer recession concerns (52%), buyer inflation concerns (40%), and declining revenue (38%). Based on this, it is no surprise that recession concerns are the top macro-economic factor influencing surveyed owners to consider selling their business, followed by labor shortage and inflation.” However, many sellers, especially Boomers, are looking to retire, and they are willing to sell now so that they can move on to the next stage of their lives.
- Rising Prices Cut Profits & Labor Issues Continue
According to the Report, “business owners stated that the high cost of goods (21%) are having the biggest negative impact on the profitability of their business, followed by the cost of gasoline (17%), the cost of labor (16%), and reduced customer spending (16%).” Both having a difficult time obtaining inventory/raw materials due to supply chain issues and having to raise wages to attract and retain staff have small business owners concerned about their bottom line.
There IS a Silver Lining
The silver lining is that there are bright spots in the report: Services and “recession proof” businesses. The most popular businesses are service-related (40%), followed by retail (29%). Buyers are focused on three things: finding essential businesses, leaving Corporate America, or looking for a side gig to supplement their income.
You can read the full report HERE.
Transworld's Results for YTD 2022
At Transworld, we sold over 550 small businesses during the first two quarters in 2022. The four most popular business categories sold were: Restaurants, Construction, Beauty/Personal Care, and Automotive. This aligns with the Report, as these are all businesses that considered essential. We have also seen a year-over-year increase in closed transactions of nearly 30% throughout our network.
If you are thinking of selling your business or buying a business, now is the time to act!
Want to learn more? Click HERE to set up a no-obligation, confidential consultation with one of our experienced brokers!