International Business Brokers Association (IBBA)/Pepperdine University Study Show Continued Strength in the Market for Small Business Sales - 2Q2018
The results of the quarterly survey and study are in, and the strong consensus is that the market for the sale of Main Street & Lower Middle Market businesses continued to be extremely strong, especially for businesses valued at up to $2 million. But what are some of the key drivers of this continued strength? The study provides some great insights that could help you find the right business to purchase, or that now is the time to get the most out of your business if you are looking to move on.
It's a seller’s market from a pricing perspective
From the seller’s perspective, this is a great time to sell your business, especially since seller sentiment about their businesses is high – which means that you can easily convey the value of the business to a prospective purchaser. According to Craig Everett, PhD, Director of the Pepperdine Private Capital Markets Project, “…capital is readily available from lenders, private equity firms, and family offices, and existing companies, have record cash sitting on the sidelines. Interest rates are still relatively low, the economy is going strong…and business confidence remains high.” All of these factors are attractive reasons for buyers to make an offer that will appeal to a seller looking to maximize the value of their company in the transaction, especially since nearly half of the sellers in this market niche are selling as a means to retire.
Failure to plan – planning to fail?
Another consideration for both buyers and sellers is that up to 89% of the business owners in this value range fail to plan for the sale of their business. That is where a team of trusted advisors is critical to ensure maximizing the value of the business when sold. In addition to having a CPA, a forward-thinking owner should also have a wealth management specialist, attorney and a good business broker to discuss exit strategies at least a year or more in advance of when the owner wants to sell.
Buyers have access to affordable financing
Although businesses are priced at the high end from a buyer’s perspective, the access to financing and capital at reasonable interest rates make purchasing a business a better economic proposition for the buyer as well. In addition, since most buyers purchasing Main Street businesses are first-time buyers, and that they are looking to “buy” a job as well as increase the ROI on their investments, the incentive to success in their new role is strong. The key is to ensure that the buyer has the managerial skills to succeed in their new role.
With an experienced business broker, who asks the right questions, the buyer is more assured of achieving their entrepreneurial dream when purchasing an existing business that meets their passion, at a reasonable price, and with a strong transition plan. This is the win-win scenario for all involved.