Both 2013 and 2014 experienced record high business transaction levels as small business owners who waited out the worst of the Recession decided to sell. Although sellers and buyers are continuing to enter the market at a healthy pace, the number of total business transactions in 2015 dropped slightly, according to BizBuySell's new 2015 Insight Report. Last year saw a total of 7,222 closed transactions, a 3.6 percent decrease from the 7,494 transactions in 2014.
The slight dip in transaction activity suggests the initial wave of owners selling after the recession may have now exited the market, leaving us with a more stable, balanced environment. As we enter 2016, a healthy amount of quality listings and qualified buyers remain in the market.
Where's the flood of retiring Baby Boomers?
Despite predictions that retiring Baby Boomers would flood the market in recent years, it appears many may be holding off on selling, which is likely contributing to the modest dip in transactions. In general, Baby Boomers are retiring later than previous generations andthere are likely a number of reasons for this. Given the severity of the Great Recession, some may still not be able to afford retirement yet, while others may just be having a hard time letting go of their businesses.
However, as more Baby Boomers reach retirement age, and more owners notice the higher sale prices sellers are receiving, quality businesses will likely continue to supply the market in 2016 and beyond.
Here are some of the report's other key findings:
- Small businesses grew financially healthier in 2015. The median revenue of sold businesses in 2015 grew to $449,462, up from $417,562 in 2014, while the median cash flow crept up to $102,000 from $100,000 in 2014. Higher financials have allowed owners to ask and receive more for their business. The median asking price grew 12.5 percent from $200,000 in 2014 to $225,000 in 2015. The median sale price also increased 7.6 percent year-over-year, from $185,000 to $199,000.
- A strong fourth quarter. While the fourth quarter of 2015 also saw a slight dip in transactions compared to the previous year, the financial performances of sold business strengthened to record highs. The median revenue of sold businesses reached $460,467, the highest revenue total since BizBuySell started tracking this data in 2007. At the same time, the median cash flow also increased slightly from $103,829 in Q4 of 2014 to $105,000 in Q4 of 2015.
- A more balanced market. Asfinancial indicators strengthen and owners receive stronger valuations, the market is leveling out what has been a strong buyer's market in recent years. In fact, BizBuySell's December survey of business brokers already pointed to a shifting market. Fifty-two percent of all surveyed brokers believe the market still favors buyers, down from 59 percent in 2014. At the same time, the number of brokers who feel the market is evenly balanced rose from 20 to 24 percent. As asking and sale prices rise, these numbers will continue to shift toward the middle.
- Restaurant industry experiences transaction lag. The restaurant industry experienced an 11 percent drop in transactions in the fourth quarter of 2015 compared to the same time in 2014. However, both the median asking price and sale price of restaurants were up from $175,000 to $185,000 and $149,000 to $160,000 respectively, suggesting sellers may be more willing to wait until they get the right offer. The restaurant industry, in particular, is grappling with higher labor, food, beverage and other supply costs as well increased occupancy and utility expenses. In 2016, restaurant owners should consider creative strategies such as increasing operating hours or cutting tips in order to combat these challenges and raise business value.
Looking ahead, 2016 will certainly be a year to watch. Buyers and sellers entering the market this year need to monitor current upcoming issues such as the presidential election, potential minimum wage hike, rising healthcare costs and global market conditions, as these changes could affect business values as well as exit or acquisition strategies. Overall, however, small business health is poised to continue in 2016. As key business financials strengthen and owners continue to receive stronger valuations, transaction activity should remain strong in 2016.