As Market Shifts: Both Buyers, Sellers Eager to Close Deals Soon
San Francisco, Oct 06, 2014 – BizBuySell, a company that connects buyers and sellers of businesses, recently surveyed more than 1,500 people currently interested in buying or selling a small business to see how confident they were in today’s market. Among the findings were:
- Prospective sellers were 20 percent more confident that they could sell at an acceptable price than they were last year. Buyers, meanwhile, were slightly less confident
- 95 percent of buyers and 75 percent of sellers hope to close a deal within the next two years
- More sellers plan to offer seller financing this year compared to last year as it continues to be a necessary tool for closing deals.
- 76 percent of buyers would like to seller to stay on board at least one day a week in order to help with the transition. Just half of sellers feel the same, however, while 30 percent want to be completely uninvolved
Seller Optimism Up as Previously Buyer-Friendly Business-for-Sale Market Begins to Balance Out
BizBuySell (website: www.BizBuySell.com) is reputedly the Internet’s largest business-for-sale marketplace. The , results of its annual survey of prospective business buyers and sellers, discovered that sellers were more optimistic than last year. The survey, designed to better understand the current wants, needs and sentiments of buyers and sellers in today’s small business market, found sellers more confident of business prospects.
In fact, 21.2 percent of sellers said they were “very confident” they could sell their business at an acceptable price, a 20 percent increase from 2013 when 17.6 percent felt the same. Overall, 63 percent of sellers expressed general confidence, saying they were at least somewhat confident they would receive an acceptable price this year. In a separate question, 47 percent of sellers said they were more confident they could receive a better price in 2014 than in 2013 compared to just 34 percent who said their confidence level was either lower or the same as last year.
Nearly Half of Owners See Improved Business Financials
Nearly half (44 percent) of those owners credited improving business financials as the primary reason for their increased confidence.
Further demonstrating the shift toward sellers, prospective business buyers, while still optimistic overall, were a little less confident in their ability to purchase a business at a good value. Overall, 78.6 percent of buyers expressed confidence in their ability to find an acceptable price, a slight drop from the 80.5 percent that felt the same in 2013. And while buyers remain generally confident, a significant number (36 percent) also indicated that they are less confident that they could buy a business at an acceptable price this year when compared to last year.
“During, and immediately following, the recession, it was no surprise that a buyer’s market would develop. As the economy continues to improve and small business financials increase, however, sellers are growing more confident at the negotiation table,” said Bob House, group general manager of BizBuySell.com and BizQuest.com. “On the other side, while buyers are still finding acceptable prices overall, they are noticing the increase in asking prices and perhaps not finding as much value in the market as they did just last year.”
More Than Half of Buyers and Nearly Half of Sellers Expect To Find Acceptable Prices For Businesses
Looking to the future, most buyers (56 percent) and nearly half of sellers (46 percent) expect their chances of finding an acceptable price to remain about the same next year. Others, however, feel waiting could be beneficial as 29 percent of buyers and 36 percent of sellers think entering the market next year will benefit them. Both sides are likely noticing the formerly buyer-friendly market moving towards a better balance.
Both Sides Still Looking to Move Quickly, Despite Differing View on Values
While confidence levels may be shifting, a large number of buyers and sellers remain active in the business-for-sale market and both groups appear ready to begin their transition processes in the near future. This suggests a continuation of the already strong levels of transaction activity seen recently – just last quarter, BizBuySell’s Insights Report recorded the highest number of small businesses changing hands since before the recession.
Buyers were particularly eager to enter the small business market as 95 percent said they hope to make their purchases within the next 1-2 years, an increase from the 87.6 percent that exhibited the same eagerness in 2013. Sellers were also excited to exit their businesses, with 75 percent saying they would leave in 1-2 years.
80 % of Sellers Believe They Can Close Deals Within a Year, Up from 70%
Furthermore, the percentage of sellers believing they can start and close a deal in less than a year increased from 70 percent to 80 percent. This falls in line with buyer expectations, as 78 percent believed they could find and complete the business purchase in the same time frame, the exact number reported in 2013.
Of course, the price at which a business is valued has a significant effect on how quickly it will be moved as well. Not surprisingly, most buyers (62 percent) felt small businesses are currently overvalued. And while just 34 percent of sellers agreed, this represents an 18 percent increase from the 29 percent of sellers who believed businesses were overvalued a year ago. This may be the result of confident sellers raising asking prices this year due to improved financial performance and a perceived stronger market.
Buyer/Seller Financing Gap Remains, But Is Closing
Seller financing remains key to helping buyers and sellers close the financial gap and it appears both parties are more aware of its benefits this year. Seller financing typically involves the seller taking 20 percent or more of the agree-upon price in the form of a loan that the buyer agrees to pay back over time, with interest.
In last year’s survey, a significant gap was revealed as 49 percent of buyers expected to use seller financing to fund part of the purchase but just 25 percent of sellers planned to offer it.
This year, a smaller portion of buyers (43 percent) expected to include seller financing in their deals, perhaps showing more confidence in banks and other financing programs. At the same time, a larger number of sellers (32 percent) planned to offer seller financing, showing their willingness to take on part of the risk to exit their businesses. This closes some of the gap we saw last year, which should help push more deals through during the rest of 2014 and into 2015.
Sellers Willing to Help After Sale, But Perhaps Not As Much As Buyers Would Prefer
Part of the small business transition process may include the previous owner staying on for a designated period of time in order to help with any early challenges. However, buyers and sellers often have different motivations, and therefore, different post-sale plans.
As might be expected, 76 percent of surveyed buyers said they would like the seller to stay on board to help at least one day per week for the following six months. In fact, 43.6 percent ask for even more of the past owner’s time, wanting him or her to work at least three days per week. Only 11.4 percent of respondents would want the previous owner to be completely uninvolved.
In comparison, 30 percent of sellers would prefer to not be involved with the business post-sale. This is possibly motivated by their desire to retire, which remains the single most cited reason for selling a business in BizBuySell.com’s most recent Buyer & Seller Demographic Study. Other sellers were willing to help on a part-time basis. Just over 27 percent said they plan to stay on at least one day per week while another 23 percent expected to be very involved, working at least 3 days per week.
“How much the former owner will remain involved can be a sticking point during the negotiation process, so it is important for both the buyer and seller to announce their preferences early in the process,” House said. “This will help ensure a compromise is included in the agreement and a late conflict doesn’t unravel the deal.”