In Q1 2019 the Business Market Trend Was Harder to Predict

According to a just released report by BizBuySell, the volume of Q1 2019 sales of small and mid-sized businesses was down year over year from 2018. Despite lower sales numbers and longer transaction times, businesses are still trading hands in record numbers. The numbers may be down a little, but they are still very good numbers. The mood in the business market remains optimistic.

Q1 2019

Business brokers surveyed by BizBuySell reported sales of 2,504 businesses in Q1 2019. These numbers were down 6.5% from Q1 2018 and followed a similar year-over-year decline reported in Q4 2018. The reasons for lower volume may include:

  • The current strong economy. Better wages and profits may be influencing workers to remain in their jobs or search for more promising employment opportunities rather than taking on the responsibility of business ownership or selling a business while it’s doing well financially.
  • Uncertainty about current and future federal government actions regarding immigration, healthcare, and tariffs, all of which will affect businesses in regards to worker supply, availability of materials, and costs.
  • The U.S. Government shutdown which affected SBA loan processing.

The shutdown also extended the length of time to close for many would-be buyers who could not get financing while government offices were closed. Currently the median number of days for a small business to be on the market is 185 compared to 174 in 2018.

While this may not be entirely welcome news for sellers, the truth is that businesses are still selling in record numbers compared to most quarters in the past decade. The market remains robust. What’s more, the businesses coming onto the market are healthy with median revenues up 6.5% from the same time last year and median case flow up 2.6% in that same period.

A piece of good news for buyers is that the market appears to be leveling out in their favor a bit. The median sale price for small businesses dropped 8.2% in this most recent quarter, and the asking price dropped 4.6%. The average Cash Flow Multiple remained the same. The discrepancy between asking prices and sale prices would seem to indicate that owners are not perhaps aware of the actual value of their companies in this market and tend to overinflate them.

In terms of specific industries, retail business sales were up 25% since Q4 2018. Sales of restaurants were also up, surpassing even Q1 2018 levels. Manufacturing business sales were down year over year 16.2%. Median sale prices and Cash Flow Multiples were also down for manufacturing businesses.

As of this moment in time, it’s speculation to decide that the lowered volume of sales of the past two quarters signifies a downward trend, especially since the numbers remain high. In fact, the number of sales during this period of time are still well within the trend of record highs. We could see the current trend reverse and more growth for the market ahead. It’s difficult to say at this point. We will have to wait and see.

If you are interested in purchasing a business, it’s a good time to buy while interest rates remain low and financing is still easy to get. Currently there is plenty of inventory in terms of businesses for sale. Q1 2019 showed a 6.1% increase in listings compared to Q1 2018. There’s plenty of opportunity, and Calder Capital continues to list high quality companies for sale on a regular basis.

If you are interested in selling, now is a great time. Please contact us confidentially.

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