Over the past couple of years, the business-for-sale marketplace has been a friendly place for buyers (at least for those who could secure financing) as pent-up supply from the great recession began to enter the market Although brisk activity has benefitted everyone, sellers haven't enjoyed the same level of confidence as buyers ... until now.
BizBuySell.com's annual survey of more than 1,500 prospective business buyers and sellers recently showed that sellers are feeling more confident in their ability to successfully sell their companies. I also heard the same message at the recent America's Small Business Development Center (SBDC) annual conference, where the attendees I spoke with confirmed that we seem to be experiencing a shift toward a marketplace that meets the needs of both buyers and sellers.
A More Balanced Business-for-Sale Marketplace
According to respondents in our annual survey, more than one in five (21.6%) business sellers are "very confident" that they can sell their companies at an acceptable price, a 20 percent increase from the 17.6 percent of sellers who reported the same level of confidence in 2013.
In general, 63 percent of sellers expressed some level of confidence in their ability to sell their businesses at an acceptable price. When asked to compare this year with last, (47%) believe they will sell for a better price this year than they would have received last year, whereas only 34% said their confidence level was either lower or the same as last year.
Additional findings from this year's survey of prospective buyers and sellers included:
- Improved financials are driving increased seller confidence. Although there are many factors behind the recent market shift, almost half of all business sellers (44%) identify improving business financials as the primary reason why they are more confident in their ability to sell their businesses. The second leading reason credited an improving small business environment and economy (36%).
- Buyers are more realistic. While still generally confident, buyers are slightly less confident in their ability to acquire a business at a good value, supporting the notion that the market is becoming more balanced. This year, 78.6 percent of buyers said they were confident in their ability to secure an acceptable price, compared to 80.5 percent in 2013. Further, 36 percent indicated they were less confident they could buy a business at an acceptable price this year when compared to last year, whereas only 31 percent felt the same when asked the same question in the 2013 survey.
- Transaction activity remains strong. The market appears poised to maintain the robust pace of activity we've seen since the beginning of 2013. While 95 percent of buyers expect to make a purchase over the next 1-2 years (up from 87.6 percent in 2013), 75 percent of sellers expect to complete their exits within the same time period.
- The buyer/seller financing gap is closing. Last year, 49 percent of buyers expected to rely on seller financing, but just 25 percent of sellers planned to offer it, highlighting the significant gap that existed in seller financing. However, this year only 43 percent of buyers reported the need for seller financing, even though a higher percentage of sellers (32%) intend to offer it--a sign that we will likely see more deals closed in remaining months of 2014 and throughout 2015.
- Sellers are eager to retire. More than three out of four (76%) buyers want the seller to stay involved with the business for at least one day a week during the first six months after the sale. But 30 percent of sellers don't want any involvement with the company post-sale, reflecting many sellers' desire to retire--which is the most commonly cited motivation for selling a business.
Although the current market bodes well for sellers, the fundamental rules of selling a small business still apply. The most qualified buyers are looking for stable and growing small businesses with a documented trend of positive earnings and a diversified customer base--and the most successful sellers will be those that invest time and energy to properly prepare their companies for the marketplace.