Despite uncertainties over the next administration and changing regulations, U.S. small business buyers and sellers remain confident in the health of the business-for-sale environment.
In September, small business sellers' confidence stood at 59 (on a scale of 100), down slightly from 62 in 2015, according to BizBuySell's latest confidence research. At the same time, buyer confidence rose to 49, up from 47 last year.
Though sellers continue to display bullish attitudes about their ability to make successful exits, prospective buyers' sentiment is quickly catching up. The gap that exists, however, reveals a number of differences in how small business buyers and sellers view today's economic, political and regulatory climate.
Opposing perceptions of the economy
What instills confidence in small business buyers sometimes discourages sellers, and vice versa. Seventy-three percent of buyers believe they can purchase a business for an acceptable price, with 35 percent citing an improving economy as a contributing factor. Interestingly, while small business buyers see the economy as a boon, some sellers cite it as a source of concern. Many sellers doubt they'd be able to receive a higher price if they held out for a 2017 sale, mainly due to fears over a weak economy.
Even still, the growing financial health of businesses listed for-sale gives sellers a confidence boost over buyers. The median asking price for small businesses sold in Q3 2016 was $216,000, up from $200,000 during the same time last year. It's not surprising then that 60 percent of buyers believe small businesses are overvalued, and 56 percent believe these prices will hold steady through 2017.
The new overtime regulations - slated to be enforced this December pending a Senate vote -also highlight divergent views between small business buyers and sellers.
Thirty-seven percent of sellers view the regulations unfavorably, with only 29 percent supporting the changes. In comparison, 41 percent of prospective buyers support the regulations, and 80 percent claim they won't impact their plans to buy a small business. Most tellingly, 48 percent of both small business buyers and sellers believe the new overtime regulations will decrease the value of small businesses. This may indicate that, while buyers recognize the payroll challenges the new overtime threshold will create, they may be hopeful that this will grant them more power during negotiations.
With major issues like tax reform and healthcare dominating the political landscape, both small business buyers and sellers were watching the election closely. Prior to the election, buyers and sellers across the board said they would feel more optimistic under a Trump than a Clinton presidency. Fifty-four percent of buyers and 57 percent of sellers believe Trump will most improve the small business environment. Only 31 percent of buyers and 27 percent of sellers believed Clinton would best benefit small businesses. These numbers foreshadowed the support Trump received on election day.
Underscoring the long-term ramifications of November 8, some potential buyers and sellers may change their plans based on the outcome of the election. A third of interested small business buyers said they would be more likely to buy a business if Trump is elected President. It will be interesting to see if these sentiments come to life.
A rare opportunity
It's unusual for small business sellers' and buyers' sentiments to align perfectly. Even as the balance between these two groups equalizes and confidence remains high, contrasting views around the economy, imminent regulations and the election results hold sway.
Depending on how certain events play out, the next few months could mark a significant turning point in small business transaction activity. Time will tell if the overtime regulations impact small business financials, or if Trump's presidency ends up impacting the pool of available business buyers. For now, buyers and sellers may want to take advantage of their relatively common ground before economic milestones get in the way of a mutually successful deal.