Has the Market for Businesses Plateaued or Even Peaked?

After the considerable success business owners have had in finding buyers for their businesses in 2015, the question that’s being floated is: Can this last?

2015Q4_Closed_Small_Business_Transactions (1)

In analyzing all sales of small businesses in 2015, BizBuySell determined that the number of completed sales had decreased slightly from 2014, going from 7,494 in 2014 to 7,222 in 2015. As you can see from the above chart, the market for small businesses began improving significantly in the first quarter of 2013 and has improved or remained at a higher rate since that time.

Both the median revenue and the median cash flow of sold businesses were up from 2014 which led to owners feeling more confident in the strength of their offerings and asking – and getting – higher prices for their businesses. The median asking price rose from $200,000 in 2014 to $225,000 in 2015, and the median selling price from $185,000 in 2014 to $199,000 in 2015.

BizBuySell’s Group GM, Bob House, believes that the slight decline in the number of sales in 2015 can be attributed to pent up supply left over from the Great Recession having left the market during the previous two years. Business owners with a strong desire to sell were not able to list them during the recession, and when the market improved, they rushed to list them. Those businesses have now either successfully been sold or have been removed from the market. The market itself is stabilizing, and more normal supply and demand forces are are now at work. The higher sale prices owners were able to demand in 2015 indicate that a lower number of sales is not something an owner with a solid business offering should be too concerned about.

Interestingly enough, a December survey of business brokers indicated that professionals in this market see it as becoming more balanced between buyers and sellers, but that a small majority believe it still favors buyers. Most brokers believe that the positive trends we’ve seen in this market in the past few years will continue. They cite improved financial health of businesses and the brighter economy as influences. It’s also easier for buyers to acquire any necessary financing from banks at this time.

Meanwhile, Baby Boomers selling and buying their businesses will continue to have an impact for a number of years to come. This generation spans several decades, and the first Baby Boomers have only just reached retirement age.

While three political issues – the presidential election, rising health insurance costs, and a possible mandate for an increase to the minimum wage – are a concern for business owners and the outcomes of these issues will affect sales numbers, most buyers and sellers are taking a wait-and-see approach rather than making any rushed decisions now.

If you would like to talk further about the small business market and how it relates to either a company you are considering selling or one you’re considering buying, Calder Capital would be happy to consult with you. Call us today to make an appointment with a West Michigan business broker.

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