BizBuySell.com’s First Quarter 2018 Insight Report shows a record-breaking quarter for the business-for-sale market for sales prices and completed transactions
BizBuySell.com, the Internet’s largest business-for-sale marketplace, reported continued strong business-for-sale activity in the first quarter of 2018, with record-breaking sales prices and transactions highlighting a positive start to the new year. The full results are included in BizBuySell’s Q1 2018 Insight Report, which aggregates statistics from business-for-sale transactions reported by participating business brokers nationwide.
Small businesses sold for a median sale price of $245,000 in the first quarter of 2018, the highest sale price since BizBuySell started tracking the data in 2007 and a 3.4 percent increase from a year ago. The median asking price of sold businesses also hit a record high at $262,000, a 4.8 percent increase from 2017. Small business owners should take note of the record prices. For those considering a sale, now appears to be a great time to at least contact a broker and ask how your business stacks up against the overall market.
While business owners are getting more for their business, it does not necessarily indicate a sellers’ market. As is evident by the 0.92 sale-to-asking price ratio, buyers are willing to pay higher prices but that may be due to the financial stability attached to these businesses and a strong optimism for continued growth. According to the National Federation of Independent Business (NFIB) February’s Small Business Economic Trends Survey, “small business owners are showing unprecedented confidence in the economy.” BizBuySell data is corroborating this sentiment.
Median cash flow is often considered the best indicator of a business’ success. The median cash flow of businesses sold in Q1 increased to $120,000, a 2.3 percent increase over the same time last year. Additionally, BizBuySell’s latest small business owner poll shows that 72% of owners believe financials will continue to rise in 2018. Notably, tax reform appears to be one of the larger factors driving this positive outlook. According to the opinion poll data, more than 48 percent of small business owners believe the tax changes benefit small businesses compared to just 24 percent who said they are harmful. Tax reform also appears to be good news for the overall small business environment as 60 percent of benefiting owners plan to hire additional employees in 2018 and 57 percent plan to increase compensation.
With owners entering the market to capitalize on rising prices and buyers willing to spend more for healthier businesses, the net result was 2,678 businesses sold in the first quarter of 2018. This represents a 13.1 percent increase from this time last year and the most businesses reported as sold in a quarter since BizBuySell began collecting this data.
Similar to the number of businesses sold in the first quarter, businesses placed on the market also increased, up 6.9 percent. These businesses also boast growing financials, suggesting there is still a large amount of healthy businesses available for interested buyers. It is likely that Baby Boomers will continue capitalizing on today’s favorable conditions and exit small business ownership for retirement in large numbers. At the same time, younger buyers are finding attractive businesses for sale with good access to lending, pointing to a balanced market with few signs of slowing down.
“Both buyers and sellers are in a really good position right now,” Bob House, president of BizBuySell.com and BizQuest.com, said. “With healthy financials, owners are able to secure a great return, while buyers are taking ownership of valuable businesses. Whether you’re a business owner looking to sell or an entrepreneur searching for a new venture, the window is open to take advantage of the strong market.”
Restaurant, Manufacturing & Retail Pace Industry Growth; Midwest Leads Regional Transaction Growth
The restaurant and manufacturing industries experienced the most growth in first quarter activity with transactions increasing 7.6 percent and 9.3 percent respectively versus the same time last year. While restaurants also saw a near 3 percent increase in median sale price, manufacturing sale prices jumped 10.6 percent driven by a 23.7 percent increase in median revenue. Both sectors figure to be very active throughout the year as is evident by the 18 percent increase in restaurants listed for sale in Q1 and 13.6 percent increase in manufacturing businesses.
Finally, while the Amazon Effect continues to lurk, the number of retail businesses sold increased 2.5 percent year-over-year accompanied by a near 3 percent increase in median sale price. According to the previously mentioned small business owner poll, 71 percent of retail business owners said they did not see Amazon as a threat to their business, confidently stating that customers still value traditional small business retailers. Based on the first quarter transaction numbers, it appears that retail savvy entrepreneurs are willing to put dollars behind that statement.
Regionally, Midwest brokers reported the most noticeable jump in total transactions, increasing 37.2 percent year-over-year. While transactions were up in the Midwest, as a whole, the median revenue and cash flow of closed businesses actually decreased, down 2.3 percent and near 6 percent respectively. The lower financials are not representative of the entire Midwest market however, but instead the direct result of a sizeable 73 percent increase in the number of service businesses sold. Service businesses also experienced an 18.8 percent drop in median cash flow which led to a 23.4 percent decrease in median sale price. Every other sector in the Midwest outperformed Q1 2017 in terms of sale price and cash flow. The Mountain region is another area of note, with brokers reporting 6.2 percent more transactions compared to last year and a 19.2 increase in median sale price, sparked by a 26.4% increase in median revenue.
What Does Q1’s Data Mean for the Rest of 2018?
Overall, the first quarter data confirms that the small business market continues to grow in 2018, even after what was a record-breaking 2017. Owners also continue to be optimistic and so do business brokers. In December, BizBuySell surveyed thousands of business brokers nationwide to gauge their sentiment on the market. Ninety (90) percent of the respondents believed small business sale prices would either remain consistent or continue to increase in 2018. Now, three months into the new year, Q1’s data has shown that belief to be correct so far.
Of course, both buyers and sellers should be aware of factors that could change throughout the year. Tax reform remains a controversial issue and a change in the make-up of Congress this year could alter the government’s perspective on the matter. The US-China trade war is also a concern as the tariff-fueled disagreement has already caused volatility in the stock market and may end up impacting owners’ costs. That said, all indicators point to another strong year.
“If 2017 was a year of unprecedented growth in small business transactions, 2018 will be about sustaining that momentum,” House said. “That’s no guarantee, especially with everything happening in the economy. The trade war is of obvious concern as are Fed Chairman Powell’s comments about continued, gradual rate increases. Certainly there is much to pay attention to, but based on our data, the business-for-sale market is in a good position to extend its positive run.”