It's news that many business owners and their brokers have been waiting to hear: The business-for-sale marketplace is off to a strong start in 2013 with sale prices rising and the volume of closed transactions improving significantly over recent years.
According to the BizBuySell Insight Report, small business sale closings in the first quarter of 2013 increased by 56 percent as compared to the first quarter of 2012. A total of 1,897 closed transactions were reported in Q1 2013, a healthy bump from the 1,218 transactions recorded during the same period in 2012 and the highest closing volume since Q2 2008. The 56 percent year-over-year jump is also the largest increase since small business sales bottomed out in mid-2008.
The boost in business sales can be attributed to several factors, but there's no doubt that one of the key drivers is a growing supply of businesses listed for sale. Many Baby Boomers had been weathering the storm of the Great Recession and waiting for the right moment to sell their companies and start sipping Mai Tais on the beach. With improved small business financials and belief that the economy is finally poised for long-term growth, many of these owners are now listing their businesses--with confidence that they'll receive an appropriate financial return from the sale.
Sales transactions prompted by the desire to sell prior to the anticipated increase in tax rates, also contributed to increased deal activity in the past quarter. The end of 2012 saw a marked increase in transactions as sellers rushed to complete sales due to fears about the "fiscal cliff" and new tax rates. In the final weeks of December, sales increased 43.4 percent over the same period in 2011 and some business brokers are attributing the Q1 2013 increase to a backlog of transactions that weren't completed in 2012 and are closing now.
A third factor behind the increase is improving small business performance. The BizBuySell.com Insight Report reveals that the financials of small businesses are improving nationally. The median cash flow of a small business sold in Q1 was $100,000, roughly a 20 percent increase over Q1 2012. Median revenue saw similar improvement, from $360,000 in Q1 2012 to $401,213 in Q1 2013.
Business buyers, essential to a robust business-for-sale marketplace, have also come back to the table. Banks are slowly opening the gates to capital and providing more business acquisition loans--a critical element in the small business transaction market that has been virtually absent for several years. Moreover, the rising stock market has generated jumps in net worth that have allowed many would-be entrepreneurs to fund or help fund a business purchase from their own savings. Finally, with confidence in the economic recovery strengthening, buyers are starting to see this as a good opportunity to get into the entrepreneurial game early in what will hopefully prove to be a long upswing in the business cycle.
As scores of buyers and sellers re-enter the marketplace, businesses with strong potential are able to command higher asking and sale prices. The median asking price for businesses sold in Q1 2013 increased by 10 percent year-over-year. The median sale price rose by 20 percent to $180,000--a level the marketplace hasn't seen since Q4 2009.
Although the first quarter offered reason for optimism, there is still some uncertainty regarding the remainder of the year. About half of business brokers who responded to a recent BizBuySell.com survey expect a slight improvement moving forward; another 13.4 percent expect no change from the current activity level.
The next few quarters of 2013 will be a critical time for the business-for-sale market. If business fundamentals and access to capital continue to improve, 2013 should prove to be a strong recovery year for small business transactions. And that would be great news for everyone.