Small business acquisitions grew a modest 2% year-over-year in Q3 2023, continuing steady gains following a 13% drop in Q4 2022 according to BizBuySell's Insight Report, which tracks and analyzes U.S. business-for-sale transactions and sentiment from surveys of business owners, buyers, and brokers. This activity is a positive sign that buyers and sellers are coming together and finding ways to hammer out deals in while dealing with current economic uncertainties. As always, businesses with healthy cash flow and good management remain in high demand, and all-cash buyers continue to have the clear advantage.
Creative Financing is Key to Sales:
With Prime-based Small Business Administration (SBA) and conventional bank loans becoming more costly, the financing landscape for small business acquisitions has evolved. As a response to the challenges posed by rising rates and tighter cash flows, buyers and sellers have become creative in structuring deals. The use of seller notes, earn-outs and other creative structures help to get deals done. We have seen that most business sales include all three of the following: buyer cash infusion, along with some bank/SBA financing and some form of seller financing. The key is to create a balance including all three components that make sense for all parties involved.
Market Trends by Sector:
The report highlights varying trends across different sectors. The manufacturing sector has shown robust growth, with acquisitions rising 13% year-over-year in Q3, accompanied by a 28% increase in median sale prices. Meanwhile, the retail sector has experienced a dip in median sale prices and financial performance, so aspiring entrepreneurs are looking for good deals in this area. Restaurant revenues grew 20% in the past year, showing continued strong sales as more people eat out, and more buyers are interested in .
Seller & Buyer Sentiment:
Small business owner confidence has remained slightly negative, with little change since 2022, as most owners feel that market conditions have not changed in recent years. Their primary concerns are rising prices/inflation, finding talented labor and concern that interest rates are impacting purchasing power. Buyers, on the other hand, are more optimistic when it comes to their confidence in the market. Regarding their motivation to seek business ownership, 44% said they are corporate refugees seeking to leave their current job with another 16% newly unemployed and seeking independence. Interestingly, 50% of those surveyed have owned a business before, which highlights the serial nature of entrepreneurs.
What's Next:
As the market heads into 2024, the prevailing high-interest rate environment is expected to continue. Despite challenges, the economy has demonstrated resilience, with strong demand for profitable small businesses. As we have said many times, Baby Boomers are still looking to retire, and now is the time for them to move on. In addition, we always encourage sellers to prepare for the unexpected, ensuring they have their financials in order and transition plans in place before they need to sell their business. You can read the full report HERE.
If you are thinking about selling your business, or you are hoping to find the right business to buy, working with an experienced business broker is key, and the Transworld of Utah County team is ready and able to help! To learn more, or to schedule a free, no-obligation consultation, click HERE.
