Sales of Businesses Slowing Due to Rate Hikes and Inflation

Small business acquisitions declined 3% in the second quarter of 2022, while the median sales price fell 9% below the previous quarter, falling from $345,000 to $315,000.

Business sales are slowing due to rate hikes and inflation

The takeover number is less concerning, as it’s still a 14% year-over-year gain, indicating that a strong market is navigating economic fluctuations well enough. The median sales price also looks like a pretty big drop, but it’s still only 2% below last year’s median sales price of $320,000, according to data from the BizBuySell Insights Report that tracks and analyzes business transactions for sale as well as the sentiment of business owners, buyers and brokers.

‘Realistic prices’ that drive down the selling price

The drop in selling price appears to be driven by more realistic prices being charged by retailers, as indicated by a 3% quarter-on-quarter drop in average cash amounts. There are also ongoing concerns about inflation and recession.

Rising costs appear to be putting pressure on companies’ financial performance, with the price of acquisitions seeing higher interest rates add to economic uncertainty. Labor market challenges also continue to hold back the growth of small businesses.

Buyers looking for a “faster approach” to lock-in interest rates

Publishing its Insight Report findings, BizBuySell said: “Market performance continues to match and in many cases exceed pre-pandemic levels. Businesses sold at an average price 17% higher compared to the second quarter of 2019 and had stronger financial results, with 16% higher average revenue and 15% higher average cash flow, respectively.In addition, companies sold at a faster pace fast. The average days on market fell 6% in the second quarter from the previous quarter, from 181 to 171 days. With the Federal Reserve’s rapid increase in interest rates, buyers of the current market are looking for lower and faster interest rates.

“Transactions are still lagging pre-pandemic levels by a small margin. The 2,342 businesses sold in the second quarter of 2022 are 4% lower than the 2,446 sold at the same time in 2019. Growth over the next quarters likely depends on a number of micro and macro factors. These range from whether the Fed succeeds in a ‘soft landing’ to whether the expected ‘silver tsunami’ of baby boomers decides now is the time to get out.” .

The owner of Horizon Business Brokers in Virginia, Dustin Zeher, says he hasn’t seen a drop in prices for businesses in his market yet, but he expects them soon. Zeher said: “I haven’t noticed any drop in sales prices yet. However, I expect them to start. Not only because of the possible drop in cash flow, but because of the higher cost of acquisition. With interest rates that increase the overall cost of the transaction, buyers will offer less to try to maintain a good ROI for the risk of their capital and time.”

Sellers are also becoming more cautious

The Insight Report also revealed that buyers are not alone in their caution, with inflation and rising interest rates making sellers more realistic about valuation and asking price.

A full 40% of business owners surveyed for the Insight Report believe they would have received a higher price for their business if they had sold it last year.

For the latest news, follow us on Google News.

Image: Depositphotos

Source link

Leave a Comment