BizBuySell, an online resource for business buyers and sellers, has released its third-quarter report for 2023. The first two quarters of the year showed an increase in small business acquisitions, which continued through Q3 as well. Here is an overview of the report, including what to expect as we enter the last quarter of 2023.
Full report: https://www.bizbuysell.com/insight-report/
The report indicates a 2% year-over-year increase, totaling an enterprise value of about $1.65 billion. This is a 4% increase from Q3 last year.
These numbers are a positive sign that buyers and sellers are finding ways to complete deals even in a high-interest rate environment. Sellers are offering more financing and finding other creative ways to get their business sold for the right price.
Additionally, deals closed faster this past quarter, with 164 median days on the market instead of 182 days at the beginning of the year. Sales prices are trending upward as well. The median sale price rose 10% overall to $329,000.
Business Sales and Listing Information for Greater Sacramento
The Sacramento, Arden-Arcade, and Roseville, California areas saw substantial increases in business listings and sales over the past quarter. The median asking price of closed (or sold) business transactions increased to $509,000, up from $274,250 last quarter. Business listings also grew again, continuing their upward trend over the year. The median revenue of reported sold businesses increased to $668,662 from $488,877.
Key Takeaways From the Report:
1. Small Business Owner Confidence Remains Low
Despite the positive increase in business acquisitions over the quarter, inflation and high costs continue to affect business owners. BizBuySell’s Business for Sale Confidence Index indicates a score of 46, unchanged from 2022 and only one point higher than 2020.
Most small business owners indicate economic uncertainty as the top factor for their lack of confidence in selling. High interest rates also play a role, as well as the need for sellers to offer seller financing.
Inflation is also playing a role, with 74% of business owners saying their costs have increased over the past year. Owners continue to struggle with hiring and retaining employees as well, with most owners stating they don’t believe the market is improving.
Ultimately, high interest rates, higher costs, and higher minimum wages have all taken a toll on small business owners this year, leading to low confidence levels.
2. High Interest Rates - Increase in Seller Financing
The rise in interest rates has caused an increase in the cost of financing. Often, business buyers look to sellers to help offset the cost of financing by offering seller financing at interest rates lower than what SBA lenders can provide.
3. Business Buyers are Optimistic
While small business owner confidence is low, buyers are remaining optimistic. Even with higher interest rates and a slightly lower confidence index score than last year, buyers still believe they can purchase a business for an acceptable price.
Buyers remain highly motivated to become entrepreneurs, with 44% saying they’re looking to leave their current corporate job. 16% of buyers state they are newly unemployed or seeking independence. And 50% of interested buyers have owned a business before and are simply looking to move on to another endeavor.
As more and more baby boomers retire each day, 39% of buyers see today’s environment as an opportunity. Additionally, when it comes to buying a business, 55% are looking to purchase a thriving business, while 40% are looking to buy a poorly performing business at a discount.
4. Manufacturing Businesses are in High Demand, Prices Increased 28%
The manufacturing sector leads the market this year with the highest annual growth. BizBuySell saw a 13% year-over-year increase in this market, with 45% growth in Q2. Median sales prices increased 28% from the previous year and 36% over the quarter.
The report indicates that this sector will continue to grow as more U.S. companies shift to domestic production to manage inventory and quality better. This sector also has solid financial performance as median revenue and median cash flow increased over the year.
5. The Retail Sector, Restaurant Businesses, and Service-Based Businesses Continue to Face Challenges
While retail business acquisitions grew 6% this quarter, sale prices decreased 18%. This indicates that entrepreneurs are purchasing retail businesses while they remain in a slump due to reduced consumer spending.
Restaurant revenue grew this quarter, but owners faced rising costs. Median review in this sector grew by 20%, yet median cash flow decreased by 3.6%. This indicates that more consumers are choosing to dine out, but restaurants are still burdened by the high costs of food and labor, which continue to affect their profits.
Demand for service-based businesses continued to decline this quarter as well. The number of closed transactions from last year decreased by 4%, with the median sale price falling by 6.4%. BizBuySell indicates that this could be a bounce back from the extreme demand for service-based businesses during the pandemic.
Outlook Through the Remainder of 2023
As we continue to move through 2023, BizBuySell states that the “high-interest rate environment is expected to continue.” The Federal Reserve remains diligent in slowing the economy and reducing inflation. While the cost of operating a business may be high, there is still demand to purchase a profitable one.
Sellers will need to continue their initiative to offer financing in this high-rate environment. Additionally, more businesses are expected to sell as more and more baby boomers move to retirement.
As the market continues to change and shift, it’s more important than ever to be prepared for your next transition. Whether you’re ready to sell or interested in buying, contact us today and let us guide you through your entrepreneurial journey.