If 2017 was a year of unprecedented growth in small business transactions, 2018 will be about sustaining that momentum.
But in a new year that's been marked by changing economic conditions - including recent stock market volatility - as well as a more crowded business-for-sale marketplace, keeping up the pace of 2017 is a tall order.
For business owners looking to sell, it's helpful to look at last year's transaction data and trends to understand where the market stands. But at the same time, they'll need to consider the unique challenges sellers face in 2018 - and how they can meet these hurdles with a strategic plan.
A look at 2017 reveals record revenues, strong sales
When it came to the business-for-sale marketplace, last year was one for the books. As BizBuySell's 2017 year-end Insight Report revealed, 9,919 small businesses were reported sold by brokers in 2017 - the biggest number since BizBuySell started recording such data in 2007 and up 27% from a year prior.
Perhaps more notable for those thinking of selling a business in 2018, however, were the financials of businesses sold: From 2016 to 2017, the median revenue of sold small businesses increased 5.8 percent to reach $500,000. This is also the highest average revenue recorded by BizBuySell since the company began compiling data. Not surprisingly, robust financials enabled sellers to net higher proceeds on business sales: In 2017, the median small business sale was $230,000 - a 12 percent rise over 2016.
These impressive financials reflect the strong market growth that defined 2017. Over the course of the year, The Dow shot up 25 percent, and the market was unencumbered by any major dips. This consistency of growth was a confidence boon for sellers. As a separate 2017 year-end BizBuySell report revealed, 60 percent of business owners surveyed said they felt they'd receive an agreeable price for their business were they to sell that day.
Meeting 2018 with a strategic plan
While last year's momentum bodes well for 2018, the new year introduces new challenges. First, there's the issue of stock market volatility: At the beginning of February, the market took a nosedive that wiped out growth from the previous month. And while the market quickly leveled and recovered somewhat, the drop did create a sense of collective unease that could impact buyer confidence.
Alongside the more volatile stock market is the question of how the GOP tax reform bill will impact small business' bottom lines. While the bill was touted as a plan designed for small business savings, the jury's still out on how that will look in practice, with some experts asserting that the legislation could actually result in a higher tax bill for the smallest businesses.
While seller confidence is still high, more volatile market conditions coupled with an election year and tax reform-related confusion could create a more uncertain for-sale marketplace in 2018. Here are three key things sellers can do to remain competitive in the busy marketplace:
- Have your finances in order: The best thing a seller can do to counter uncertain economic conditions is to project certainty with business financials. As a seller, maintaining ordered and easily presentable financial records goes a long way toward instilling confidence in prospective buyers.
- Get to know your potential buyer: Sellers should go the extra mile to create trust with a qualified potential buyer. While the buying and selling process can easily turn anonymous and transactional, it pays - literally - for sellers to connect with potential buyers. The goal should be to make the process feel like a win-win partnership rather than a transaction.
- Don't overinflate your business' value: As a seller looking to net the largest return, it may be tempting to list your business well above market value. Better to start high and negotiate down, right? Yet in practice, this approach backfires by deterring buyers who might otherwise be interested. By setting prices according to concrete financials and market benchmarks, sellers have the greatest odds of making a satisfactory sale.
While stock market volatility and a more crowded for-sale marketplace may create challenges for sellers in 2018, those that approach selling strategically can still come out on top.