A newly issued Business Buyer-Seller Confidence Index shows that business sellers are more confident they can successfully exit their business. Interestingly, while there are definitely business buyers in the market, buyer confidence has fallen slightly over the past year. Some business buyers believe it is difficult to negotiate in this market with seller’s expectations increasing. These survey results track closely with our experience over the pst few months.
Here is the summary of the BizBuySell report
BizBuySell, the Internet’s largest business-for-sale marketplace, has announced the results of its annual Business Buyer-Seller Confidence Index an indicator of small business buyer and seller sentiment on the current business-for-sale environment. The confidence index is calculated by evaluating survey responses of more than 1,500 people interested in either buying or selling a small business. A separate score is calculated for both current small business owners interested in selling and prospective buyers currently exploring the market. Each group’s score ranges from 0 to 100, with 100 representing a perfect environment for buying or selling a business.
This year’s results showed sellers feeling more confident that they can successfully exit their businesses as the Seller Confidence Score grew to 62 after two consecutive years at 56. Not only did a majority of owners (58 percent) believe they can receive more money for their businesses than they could last year, but more than 90 percent were optimistic enough to say they will be able to achieve the same or higher sale price next year. Respondents to both questions responded with higher, more optimistic percentages that did the same last year. Overall, this is a good indication that sellers have seen conditions improve since the recession and are confident that favorable conditions will continue in 2016.
Sellers also indicated an increased number of buyers in the market this year. When asked to identify the biggest issues limiting their ability to sell, just 12 percent said they couldn’t find a buyer – a significant drop from the 27 percent who indicated a shortage of buyers in 2014. Perhaps even more importantly, 43 percent of sellers said they have no issues and could successfully exit their businesses right now compared to just 23 percent who felt the same level of confidence last year.
“Small business owners are definitely viewing today’s market as a great opportunity to sell,” said Bob House, Group GM of BizBuySell.com and BizQuest.com. “We’re also seeing this increased confidence translating into more owners actually listing their small business on the market. The number of for-sale businesses on BizBuySell.com reached a six-year high this year, driven by increasing small business financial performance in the post recession period.”
Prospective small business buyers, however, were more tentative in their optimism. The Buyer Confidence Score dropped from 52 in 2014 to 47 this year. In fact, a significant percentage of buyers (31 percent) said they were better off purchasing a business last year than they are this year (14 percent). In addition, when looking forward, a higher percentage of buyers (18 percent compared to 12 percent in 2014) believed that if they waited a year to sell, they would actually receive a worse deal. Recent volatility in the U.S. and Chinese stock markets was likely fresh on respondents’ minds when they completed the survey in recent weeks, and the fear of economic instability may have contributed to their skepticism. Buyers also seemed to believe that seller asking prices are too high, with 57 percent reporting that small businesses are currently overvalued.
“It makes sense that for many of the same reasons sellers are becoming more optimistic, buyers are growing a bit more cautious,” House added. “However the timing of this year’s survey in the midst of stock market turmoil likely contributed to a drop in the Buyer Confidence Score and the continued strong pace of small business transactions taking place in 2014 shows that many buyers are still seeing value in today’s market.”
Trump Winning Over Both Small Business Sellers & Buyers
With the 2016 election getting closer, small business owners and prospective small business buyers have a vested stake in presidential politics and the candidates’ policies on issues that impact the small business community.
Respondents reported a clear favorite in the presidential race, with 42 percent of sellers and 34 percent of buyers indicating that Donald Trump is the candidate most likely to improve the small business environment. Hillary Clinton was the next most popular candidate for both groups, but at only 13 percent and 16 percent respectively. Bernie Sanders rounded out the top three for buyers and sellers (10 percent and 8 percent), while the remaining Republication candidates all polled at less than 6 percent.
Buyers and sellers appear to respond favorably to Trump’s policies on taxes and the economy. When asked to identify the issue they are most interested in during the election cycle, sellers that favored Trump listed tax reform (51 percent), economic policy (38 percent) and health care as the issues they are most interested in. Buyers listed the same top three issues to watch at 51 percent, 45 percent and 35 percent respectively. Jobs (35 percent an 28 percent) and Immigration (20 percent and 21 percent) and were the next most important issues for both buyers and sellers.
Minimum Wage a Concern, But Not Enough to Stall Plans
Minimum wage is another issue that is directly affecting small business owners. Not surprisingly, of those with a strong opinion, 64 percent of owners said they are against a higher minimum wage compared to the 36 percent in favor. Those opposed to an increase in the minimum wage point to the effect on their business value as 63 percent believe a higher minimum wage will decrease their business value and hurt their ability to successfully sell the business. However, half of respondents (49 percent) said it would not affect their business either way. Similarly, more than three out of four small business owners said that changing minimum wage laws would have no effect on their plans to sell.
Prospective buyers were split on the issue, but agreed that a higher wage would not influence their willingness to acquire a business. Just over 38 percent of buyers said they are against a higher minimum wage, while a close 35 percent said they are in favor. Buyers may view the minimum wage issue as an opportunity to drive down asking prices, since more than half of prospective buyers surveyed admitted that a higher minimum wage would decrease the value of a business. Even so, 77 percent said the changing laws would not affect the timing of their plans to purchase a small business.
Buyers Have More Capital This Year, But Still Expect Seller Financing
The slight drop in buyer confidence doesn’t seem to be related to a lack of capital. When asked to name the issue that is holding them back from purchasing a small business, just 21 percent cited a lack of available capital – a big drop from the 44 percent who named money problems in 2014 and the 45 percent who cited a scarcity of available capital in 2013. As the economy continues to improve and personal wealth increases, more and more qualified buyers are looking to small business ownership.
Rather than incurring high upfront costs, many buyers still hope to include seller financing in their agreement as a way to close a deal. In fact, 42 percent of buyers expected seller financing compared to just 23 percent that had no expectation of financing from the seller.
This could be problematic when it comes to negotiations because just 23 percent of sellers said they plan to offer financing compared to 49 percent who said they will not. Perhaps noticing the increase in available capital for buyers, sellers are hoping to receive more money upfront. The 23 percent offering financing is a drop from the 32 percent who said they would consider financing a portion of the sale in 2014.
“The financial structure of a buy-sell agreement is often one of the most contested issues,” House said. “While it’s great to see that more buyers have available capital, most buyers will not want to pay everything upfront. Sellers who want to attract more potential matches and increase their final price should consider offering financing to make their listing more attractive to buyers.”