Signs seem to be mixed these days on how well we're doing in the wake of the economic turmoil that has afflicted us. But in addition to the stock market and slight rise in employment, there's good news in the marketplace for sales of small businesses.
It's one of the indicators of a recovering economy. And despite the painfully slow recovery from the recent recession, business brokers are now seeing more buyers and sellers for small businesses on the market, with more businesses changing hands so far in 2013. The outlook is positive for the rest of the year as well, according to a nationwide survey of business brokers.
The same brokers, however, believe that the 2013 tax changes are deflating small business values overall. In part, this may be a factor in the increased number of sellers putting their small businesses on the market.
"Small businesses are not as valuable as they were before, prior to the tax law changes," said Bob House, general manager of BizBuySell.com, which conducted the survey. "As a result, there are more sales because of the slightly depressed prices."
Of the thousands of brokers surveyed, 75.2 percent of respondents said they are seeing the same amount or more deals getting done compared to the same time last year. The number one reason they give is an increase in the number of interested buyers (26.8 percent), while a close second (25.6 percent) said they found an increase in the number of owners looking to sell. Other reasons they cited were that the small business environment is improving (13.4 percent), and financing options are improving (8.5 percent), according to House.
"There has been a latent supply of buyers and sellers waiting for the right time to enter the market for a long time now," said House. "Owners finally feel their businesses are healthy enough to put on the market and buyers are finding better lending options to fund their purchases. With the economy improving and stocks at record highs, it isn't surprising to see the market growing more crowded."
Brokers were optimistic for both the short-term and long-range prospects of business sales. A total of 54.2 percent expected slight to significant improvement for the rest of 2013, while 13.4 percent expect no change from current activity. Asked when they expect business transaction volumes to return to pre-recession levels, 44.6 percent said within the next 24 months, while 38.1 percent said it would take more than two years. This is significantly more optimistic a view than brokers had just a few months ago, according to House. In November 2012, just 29 percent expected a return to prerecession levels within 24 months, and a majority, 56.4 percent, said it would take more than two years.
"There are a number of reasons for the increase in transactions for the first quarter of this year," House said. "Partly, it's due to more realistic valuations, plus a backlog of buyers and sellers who had been waiting around for a number of things, such as the election and the fiscal cliff, to get settled."
"With the elections over and the fiscal cliff past, folks are done waiting on Washington to solve problems," one broker said. "The stock market is up, unemployment is down and people are getting on with their lives."
Another reason for the increase, suggested House, is that "there was a latent supply of sellers, Baby Boomers at retirement age, who were unable to sell the last couple of years, but who are able to sell at a level they can retire at because business is better.
The total picture is one of increasing optimism. A lot more small business transactions will happen this year, and we're certainly seeing that in the results for the first quarter of this year."
