The Historic Levels of Small Businesses Being Sold Drops Slightly
The number of small business transitions continues to be strong for the first quarter of 2019. In fact, despite a small decline, small business transitions remain at historically high levels.
Looking at the Statistics
According to a recent BizBuySell article entitled, “Number of Small Businesses Changing Hands Dips Slightly, But Market Remains Ripe for Buyers and Sellers,” now is still very much the time for both buying and selling a business. It is true that the number of businesses sold in the first three months of 2019 dropped by 6.5% when compared to 2018. Yet, it is important to keep in mind that the number of completed transactions remains very strong. Likewise, inventory is increasing, with a 6.1% increase in listings in Q1 of 2019 when compared to the same period in 2018.
While the market is indeed strong, the BizBuySell article did note that some experts feel that there are signs that the market could become more challenging moving forward. In part, this is due to the prospect that interest rates and financing could become increasingly challenging and more expensive. These factors indicate that now is a smart time to both buy and sell a business.
Likewise, the financials of sold businesses in Q1 remains strong. In fact, the median revenue of sold businesses jumped 6.5% when compared to Q1 2018. Now, the median revenue stands at $540,000. However, cash flow continues to hover around the $100,000 for five years in a row.
What are the Top Regions?
Currently, the top markets by closed small business transition are Miami-Fort Lauderdale-Miami Beach, Los Angeles-Long Beach-Santa Ana, New York-Northern New Jersey-Long Island, Tampa-St. Petersburg-Clearwater and Dallas-Fort Worth-Arlington. The top markets by median sale price are Charlotte-Gastonia-Concord, San Francisco-Oakland-Fremont, Denver-Aurora and Dallas-Fort Worth-Arlington.
A Consistently Strong Market
Overall, the experts at BizBuySell believe that the market remains very strong and active. They believe that the wave of retiring baby boomers looking to exit their businesses, historically low interest rates and the rise of the next generation of entrepreneurs are helping to fuel a great deal of activity.
According to Matt Coletta, Co-Founder and Managing Partner, M&A Business Advisors, “We are seeing more quality businesses coming on the market with good, clean books than I have seen in my 25+ years in the business.”
If you are considering buying or selling a business, then now is an excellent time to jump in. Working with a business broker is a great way to ensure that you find the right business for you at the right price.
Could the Red-Hot Market for Businesses Be Cooling Down
The economy is red hot, and that fact is translating over to lots of activity in businesses being sold. However, it is possible that this record-breaking number of sales could cool down in the near future. In a recent article in Inc. entitled, “The Hot Market for Businesses is Likely to Cool, According to This New Survey,” the idea that the market for selling business is cooling down is explored in depth. Rather dramatically, the article’s sub header states, “Entrepreneurs who are considering selling their companies say they’re worried about the future of the economy.”
The recent study conducted by Pepperdine University’s Graziadio School of Business as well as the International Business Brokers Association and the M&A Source surveyed 319 business brokers as well as mergers and acquisitions advisers. And the results were less than rosy.
A whopping 83% of survey participants believed that the strong M&A market will come to end in just two years. Perhaps more jarring is the fact that almost one-third of participants believe that the market would cool down before the end of 2019.
The participants believe that the economy will begin to slow down, and this change will negatively impact businesses. As the economy slows down, businesses, in turn, will see a drop in their profits. This, of course, will serve to make them more challenging to sell.
The Inc. article quotes Laura Ward, a managing partner at M&A advisory firm Kingsbridge Capital Partners, “People are thinking about getting out before the next recession,” says Ward. The Pepperdine survey noted that a full 80% of companies priced in the $1 million to $2 million range are now heading into retirement. In sharp contrast, 42% of companies priced in the $500,000 to $1 million range are heading into retirement. Clearly, retirement remains a major reason why businesses are being sold.
Is now the time to sell your business? For many, the answer is a clear “yes.” If the economy as a whole begins to slow down, then it is only logical to conclude that selling a business could become tougher as well.
The experts seem to agree that whether it is in one year or perhaps two, there will be a shift in the number of businesses being sold. Now may very well be the right time for you to jump into the market and sell. The best way of making this conclusion is to work with a proven and experienced business broker. Your broker will help you to analyze the various factors involved and make the best decision.