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Veterans Take Note-Small business sales see first quarter spike

Posted by Michael Horn on Fri, Jun 30, 2017 @ 11:37 AM

This article by Urvaksh Karkaria at the Atlanta Business Chronicle describes small businesses selling nationwide and the information my very well apply to your locale. As we discuss in class, when a veteran considers buying a business there are many factors that must be understood. One of those is the changing market for businesses. Prices and values rise and fall just like with other commodities. It is important for veterans to understand these price and value changes. Factor the changes into the decision making process of whether and when to buy an existing business rather than starting from scratch. 

Karkaria writes--A combination of election uncertainty and optimism about the Trump administration led to surge in small business transactions in the first quarter.

Nationwide, brokers reported 2,368 closed deals to online business-for-sale marketplace BizBuySell.com in Q1, a 29 percent increase from the same period last year.

“The last time we saw such a large year-over year increase was in Q1 2013,” noted Bob House, president of BizBuySell.com and BizQuest.com. “There’s a blend of buyer optimism as a result of the change in administration, as well as perhaps some sellers who started the process last year due to election year uncertainty.”

Though the spike in small business transactions may be partly due to a rush of buyers and sellers looking to close deals around the New Year, a healthy economy, strong small business financials, and access to financing are also enticing more buyers and sellers to the market, BizBuySell noted.

The business community sees the Trump Administration as an opportunity for reduced regulations, and lower wage and health care costs. Indeed health care, tax reform and jobs were the top three issues small business owners and buyers want President Donald Trump to address, according to a BizBuySell survey of more than 700 respondents conducted about 30 days after Trump took office.

The survey also indicated that sixty percent of respondents were in favor of repealing Obamacare. Trump, meanwhile, had an approval rating of 47 percent among small business owners and 40 percent approval among small business buyers. The majority of small business owners (79 percent) and buyers (74 percent) said they felt there were too many regulations on small business, according to the survey.

The “Trump bounce” being seen in the stock markets is reflected in small-business acquisitions, noted David Chambless, CEO of Atlanta-based Abraxas Business Services.

Buyer and seller confidence is “significantly” stronger since the first of the year, noted Sara Burden, CEO of Atlanta business brokerage Walden Businesses.

“The trend we are experiencing now, and expect to continue to see, is the rush of aging business owners to put their exit plans into action before another shoe drops somewhere in the world,” Burden said.

Despite the threat of increased interest rates, the feeling is that these adjustments will be routinely absorbed, Burden said. “A higher interest rate on a business loan for the buyer translates into higher interest on the investments a seller makes when the sale is completed,” she said. “It’s all part of doing business.”

The median selling price of small businesses sold in metro Atlanta rose nearly 30 percent in the first quarter, versus a year ago, according to BizBuySell.com. The median revenue of those businesses, meanwhile declined 24 percent from a year ago.

According to an analysis of 75 closed transactions in metro Atlanta by BizBuySell, businesses sold for a median price of $270,000 in the first quarter, compared with $212,500 a year ago. Businesses that sold in Q1 had a median annual revenue of $482,540, compared with $637,787 at the same time last year.

Nationally, the median sale price increased nearly 8 percent from $220,000 in the first quarter of 2016 to $237,000 in 2017 despite the median asking price remaining flat at $250,000. This puts the average sale-to-asking-price ratio at 0.92. The strong ratio indicates the market is becoming more balanced, with healthy financial figures bringing both parties closer together in their assessment of fair market value, according to BizBuySell.

Lending for business-acquisition purposes continues to be the key impediment to the market.

“Lenders have money, and they say they are lending,” Chambless said. “What they don’t talk about is the circumstances under which they will loan: and, those circumstances do not often include business acquisition

Even so, Chambless remains optimistic about the business-transaction market for the remainder of 2017. “The economies (from micro to macro) will continue to strengthen making buyers more confident about buying, and increases in interest rates will provide investment vehicles for the sellers of businesses,” he said.

Demographic trends also play a role in the optimism. Business owners continue to age, Chambless said. “Having seen many business owners decline to sell in 2005 and 2006 only to not be able to sell in 2008 to 2010, business owners are increasingly sensitive the timing of their decision to sell,” he said.

Burden is guarded in her outlook for the rest of the year. “We don’t see multiples of EBITDA (a measure of a company’s operating performance) for the lower end of the middle-market increasing in the near term,” she said. “The market is dictating what it will and will not tolerate in pricing and at the end of the day, the deal must make financial sense to both the buyer and the seller.”

Based on first quarter performance, 2017 is likely to be a record year in transactions reported.

“I think it will be a good year with good fundamentals,” House said. “Unless something changes in the broader economy we are going to see a year that surpasses 2016, which was a record year since BizBuySell began reporting the data in 2007.”

Topics: Veteran, Entrepreneurs, Buying, Franchise, vetrepreneur