May 28, 2014
San Francisco, CA - May 28, 2014 -- In a nationwide survey of business brokers conducted by BizBuySell.com, the Internet's largest marketplace for buying or selling small businesses, more than 63 percent of respondents reported a year-over-year increase in the number of small business transactions.
Brokers are clearly seeing the momentum from last year carry over to the first half of 2014. In fact, according to BizBuySell.com's 2013 year-end Insight Report, small business transactions jumped 49 percent and survey data shows brokers are optimistic that the strong growth trend will continue throughout 2014.
When asked to identify the factors behind the 2014 increase in transactions, brokers cited a greater number of interested buyers on the market as the primary reason for increased activity. More than 45 percent of those brokers attributed gains in the number of prospective buyers to increased confidence in the economic recovery. Others suggested that more buyers are entering the market because they feel they are getting good value, have greater access to lending and financing options, or may have more capital due to increasing stock and home values. In addition, retiring Baby Boomers continue to offer solid business opportunities for buyers to purchase. A majority of brokers estimated that more than half of their business sales are attributed to Baby Boomers who are selling their business.
“Last year was an incredible 12 months for the small business transaction market and it's great to hear that brokers are seeing similar, if not better, activity so far in 2014,” Curtis Kroeker, Group General Manager of BizBuySell.com and BizQuest.com, said. “The increase in interested buyers is especially encouraging as it shows that more Americans are confident in the health of today's small business environment.”
Brokers were not only happy to see more businesses changing hands so far in 2014–they were also optimistic that the improvement would continue throughout the rest of the year. More than 70 percent said they believe more deals will get done over the remainder of 2014 than have already closed in the first few months of the year. Among the reasons cited for optimism were seller price expectations becoming more realistic (27 percent), a continued improvement of the small business environment (20 percent), an increase in the number of buyers (19 percent) and an increase in the number of sellers (18 percent).
Seller Financing Helping More Buyers, Sellers Close Deals
Funding is a key factor in prospective buyers' ability to close the deal. While lending options have improved, many buyers still face a significant financial gap. A main reason that gap has not slowed small business transactions is sellers' willingness to offer financing.
More than 80 percent of surveyed business brokers said that seller financing is either important or essential to completing the sales process. This is slightly down from a September 2012 BizBuySell survey in which 90 percent of brokers found seller financing to be either important or essential. The drop is likely driven by improved availability of other funding sources (including bank loans and personal savings), but the 80 percent figure makes it clear that most sellers should still expect to offer financing themselves in order to close a deal.
Further underscoring the key role of seller financing, less than two percent of the brokers surveyed this year deemed seller financing unnecessary in today's market (a figure unchanged vs. the September 2012 results). When asked about their sales, 26 percent of brokers said nearly all (90 to 100 percent) of their closed sales include seller financing while another 32 percent noted that most (60 to 89 percent) included it. These responses were down slightly from the September 2012 survey in which the reported figures were 33 percent and 35.5 percent, respectively.
So, while economic improvement has clearly benefited buyers and sellers in the business-for-sale market, seller financing remains as important as ever for funding and closing deals.
Economic Hurdles Could Hold Transaction Numbers From Reaching Pre-Recession Levels
Although the forecast for the business-for-sale market is positive, brokers are aware of several issues that could slow the vibrant growth that has occurred over the past year and a half.
Nearly 30 percent listed the national debt and political gridlock as the top issue endangering the recovery. This nearly mimics BizBuySell's spring 2013 survey in which 32 percent of brokers cited the U.S. debt and political situation as the top factor that could slow the recovery. The response consistency shows that, at least in brokers' eyes, not much has changed over the past year in terms of government concerns.
Other 2014 dangers listed by brokers included small business tax rates (18 percent), a return to high unemployment (12 percent) and small business health care costs (12 percent).
And while transaction numbers continue to grow, brokers still believe the market has a ways to go before reaching the levels we saw prior to the recession hitting in 2008. Nearly 37 percent of the brokers surveyed indicated it would still be more than 2 years before volumes returned to pre-recession levels. Others were slightly more optimistic as 18 percent said it would be 12-18 months, with another 17 percent estimating it would be 18 to 24 months before transaction numbers reached pre-recession levels.
“Overall, the business-for-sale market is in a great place right now – economic conditions and small business performance are improving and the fundamentals are right. However, it's important not to get complacent,” Kroeker said. “Small business owners are looking to Washington to do what it can to foster a favorable environment for the small business economy. If that happens, we expect business transaction levels to remain healthy for the foreseeable future.”
BizBuySell is the Internet's largest business for sale marketplace. Since 1996, BizBuySell has offered tools that make it easy for business owners and brokers to sell a business, and potential buyers to find the business of their dreams. BizBuySell currently has an inventory of approximately businesses - spanning 80 countries - for sale at any one time and receives more than monthly visits. The site also features an extensive franchise directory as well as an easy-to-use business valuation tool. Please visit www.bizbuysell.com for more information.
BizBuySell was founded in 1996 and in 2012 became a division of CoStar Group, Inc. (NASDAQ - CSGP) - commercial real estate's leading provider of information and analytic services. CoStar conducts expansive, ongoing research to produce and maintain the largest and most comprehensive database of commercial real estate information and offers a suite of online services enabling clients to analyze, interpret and gain unmatched insight on commercial property values, market conditions and current availabilities. For more information, visit www.costar.com.
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