Learn about the state of small business in Q3 2019.
As 2019 winds down, though transaction volume has decreased slightly over 2019, the financial health of a sold business remains rock solid. Interestingly buyer and seller confidence are meeting in the middle at 52 and 53, respectively, making a nod to the growing sale of boomer businesses, and buyers ready to acquire them. Some may say the 2020 election brings uncertainty, but the Seller Tsunami is also bringing a wealth of opportunity for visionary entrepreneurs across the country in a historic transfer of wealth.
Introduction
In an overview of the 2019 market, Business Broker, Chris Cantwell said, “We’re still seeing the front end of the boomers putting their businesses on the market and there are still more good buyers than there are good businesses to sell. Business sellers have tended to be in their late 60’s, early 70’s in contrast to most business buyers who are in their late 30’s, early 40’s. These buyers have visions of adding value to businesses for sale through implementing innovative technology programs and robust marketing strategies while being able to benefit from the reputation of a well-established company.” Chris went on to underline that so far there has not been a shift in business valuations due to the tsunami or otherwise and the market is balanced for buyers and sellers and not overpriced.
Q3 2019 was a continuation of the slightly decreasing numbers seen over 2019, with a total of 2,454 small business sales reported to BizBuySell. This represents an 8.6% decline over Q3 2018. Overall, business sales are still at record highs, but the downward trend points to the predicted uncertainty an election year represents for consumers and business owners. Buyer and seller confidence have also been changing this quarter. Seller confidence came down to 52, and buyer confidence came up to 53. This neutral balance in sentiment is likely causing negotiations to slow as concession options are discussed. This may also have contributed to lengthened transaction time and ultimately a lower number of transactions completed overall. There has been a lot of conversation around tariffs affecting the market as well, but this has not been reflected in the financial indicators of companies listed for sale or their purchase prices.
In a recent conference presentation on the opportunities surrounding the seller tsunami, President and Co-Founder of Transworld, Jessica Fialkovich discussed the increased usage of performance-based financing structures. “In my experience, performance-based financing either in the form of earnouts or adjustable seller notes has been on the uptick,” said Fialkovich. “These creative terms are a great way for buyers with limited capital to make acquisitions and they’re also great for mitigating uncertainty and difficult negotiations for buyers and sellers at the closing table.” She then went on to say that with an increasing number of baby boomer business owners selling for retirement we may see this creative financing more and more, especially if the volume of listings begins to dilute valuations of very financially strong companies or if traditional financing methods become more expensive in 2020 and onward.
To learn more about planning an exit in 2019/2020, schedule a consultation with a business broker today.
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About Transworld Business Advisors - Rocky Mountain
Transworld is the top business brokerage firm in Colorado, listing 200+ businesses for sale annually. Transworld assists visionary entrepreneurs with buying or selling a business in Colorado, specializing in helping family-owned and closely held businesses with their strategic plans. Through their commercial partner, Transworld Commercial Real Estate, Transworld also advises clients on commercial real estate acquisitions and dispositions.
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Rachael Holstein has been the Marketing Manager for Transworld - Rocky Mountain since 2016. Her working experience has largely focused on Business Development in the finance, architecture, property management, and information technology industries. A long time resident of Cleveland, Ohio, she attained her undergrad from John Carroll University and her Master’s Degree in Global Interactions from Cleveland State University. In 2013, she relocated to Denver with her husband, Joe, and her furry companions to explore the mile high life!
