Small Business Sales Increase 20% Year Over Year
Q2 was a busy quarter for us. June was probably the busiest month so far this year for inbound calls from business owners interested in exploring the process of selling their businesses.
One trend we've seen is that baby boomers have had to continue operating their businesses longer than expected. Many of them would have liked to sell their businesses, but due to the pandemic, increased labor costs, and rising inflation, they continued working.
Unfortunately, this has led to burnout, which has led to declining revenue and profit. Declining revenue and profit reduces companies' value.
The good news is that the market is moving in the right direction.
According to BizBuySell's latest Insight Report, small business transactions have increased 5% over the past year and 3% from the previous quarter, with 2,448 businesses sold. This surge has brought the total enterprise value to an impressive $1.9 billion, a 20% increase from last year.
In the Greater Sacramento area, the statistics tell a different story. The average sale price in Q2 2024 was $250,000, while the average in Q2 2023 was $274,250.
While this is a negative indicator for 2024, based on the businesses we are currently working with, we believe that the second half of 2024 will be much stronger. We expect to see more transactions with a higher average sale price.
According to the report, interest rates are anticipated to decrease soon, which could further stimulate the market.
Buyer Strategies and Market Trends
Despite high borrowing costs, most buyers are not holding back. They employ various strategies to offset these costs, such as negotiating lower purchase prices, seeking lower interest rates, exploring alternative financing methods, increasing down payments, and opting for shorter loan terms.
Seller Accommodations
Sellers are increasingly willing to offer financing and earnouts to close deals. The percentage of sellers open to financing has risen to 24%, with some willing to finance up to 50% of the purchase price. This shift is a response to tighter bank lending standards and higher borrowing costs.
We've had seller financing included in almost every listing this year.
Buyers Focus on Performance and Stability
Financial performance remains the top priority for 42% of buyers when purchasing a business, followed by growth potential (26%) and location (15%). Stability is also a key factor, with 69% of buyers favoring recession-resistant businesses.
A notable trend is the rise of corporate refugees, retirees, and the recently unemployed entering the market, seeking the independence of small business ownership.
We have many of these in the Greater Sacramento area as we continue to see families relocating from the Bay Area in search of lower costs of living and better school systems. A number of them see business ownership as a way to provide for their families.
Service and Manufacturing Sectors Shine
The service and manufacturing sectors are experiencing strong demand. Service businesses sold in Q2 saw a 17% increase in median sale prices and robust margins. Manufacturing businesses showed even more impressive growth, with a 31% rise in median sale prices and significant increases in cash flow and revenue.
Challenges in Retail and Restaurant Sectors
In contrast, the retail and restaurant sectors have faced challenges. Retail sector transactions decreased by 2%, with a 4% drop in median sale prices. The restaurant sector saw flat transactions year-over-year, with a 6% decline in median sale prices, although margins have improved.
Market Outlook
Looking ahead, the business-for-sale market is expected to grow. While costs remain high, businesses are adapting and finding ways to maintain profitability. With potential interest rate cuts on the horizon, buyers and sellers alike can expect increasingly favorable terms.
In conclusion, the small business acquisition market is healthy, with rising prices and strong demand for high-performing, stable businesses. Both buyers and sellers are navigating the current economic environment with strategic adjustments, setting the stage for continued growth and opportunity in the business-for-sale market.
Additional Resources:
Are you considering buying or selling a business? Contact Sacramento Business Brokers today for a personalized consultation. We are here to guide you through every step of the process, ensuring a smooth and successful transaction. Don't wait—reach out to us now to start your journey towards achieving your business goals!
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