8 November 2024

Small Business Sales Slowing in Third Quarter

By Ronald Smith

So, guess what? The latest BizBuySell Insight Report just came out, and it’s got some interesting news. You ready? Okay, here it is: small business sales are not doing as well as they were before. Hmm, I know, kinda surprising, right?

Let me break it down for you. In the third quarter of 2022, there were 2,237 closed deals reported. That might sound like a lot, but get this: it’s actually 2% less than last year. Yup, it dropped by a smidge. And not only that, compared to the second quarter of 2022, this quarter’s sales were 4.5% lower. Ouch.

Why is the Small Business Sale Market Slowing Down?

Well, there are a couple of reasons for this slowdown. One reason is the rising interest rates. You know, when you borrow money from the bank to buy a business, you usually have to pay them back with interest. And when those interest rates go up, it makes it more expensive for people to buy small businesses. It’s like if the price of a toy you want goes up, but you don’t have enough money to buy it. Bummer, right?

Another reason for the slowdown is the increasing acquisition costs. When you want to buy a small business, you have to pay for a lot of things, like lawyers, accountants, and other fees. These costs have been going up, and it’s making it harder for people to afford buying businesses. It’s kinda like if you want to buy a fancy dessert, but you realize that it costs way more than you thought. Not cool.

Oh, and one more thing. The prices that people are asking for their small businesses have gone down by 13% compared to last year. And the prices that businesses are actually selling for have dropped by 14%. So, not only is it harder to buy a small business, but the prices are lower too.

So, there you have it. Small business sales are slowing down because of rising interest rates and increasing acquisition costs. Let’s hope things turn around soon!

I have some interesting information to share with you. It seems that sellers have been reducing their prices in order to accommodate buyers who are dealing with higher interest rates and increased acquisition costs. These rising interest rates are making it more and more difficult for owners to find the money they need to cover their expenses and keep their businesses running smoothly. Because of these rising costs, many owners are finding themselves having to pay higher interest rates on their debts, which is putting even more pressure on their ability to make a profit.

According to Dustin Zeher, the owner of Horizon Business Brokers, all of these extra costs are affecting the overall transaction process. Buyers are taking into account the increased expenses and fees associated with taking out a small business loan when making their decisions and offers. They want to ensure that they will get a good return on their investment, their time, and the risks they are taking. So, it’s no wonder that sellers are feeling the strain and are having to make price adjustments.

In 2021, the Business for Sale Confidence Index showed that small business owners were feeling more confident with a score of 57. However, this year, that number has dropped to 46, which is closer to the pandemic’s record low of 45 in 2020. This decrease in confidence is concerning.

Why are small business owners feeling less confident? Well, inflation and rising interest rates are major factors. An overwhelming 83% of owners say they are dealing with higher costs, and a whopping 79% think that inflation is not getting better. On top of that, more than half of business owners (58%) believe the labor market is not improving. Alongside that, many (42%) say that supply chain issues are not getting any better either.

I wanted to talk to you about the demand for restaurant businesses. It’s been bouncing back lately, especially in busy areas where people are starting to dine out again. I noticed that restaurants have been selling for a median price of $209,500. That’s quite a bit lower, about 30%, compared to the median sale price of all Q3 transactions.

Now, let’s shift our focus to retail businesses. They’ve been selling for a median price of $275,000, which is 7% less than the previous quarter. It’s interesting to see how the prices have changed, right?

As for service businesses, they’ve actually improved by 3% compared to last year. However, they did see a 3% decrease from the previous quarter. The median sale price for service businesses has stayed the same at $299,000. It’s worth mentioning that sellers have been asking for 14% less than in Q2 and 13% less than this time in 2021.

Timing of a Purchase

I feel like a lot of people are regretting not buying a business last year because of the bad economy. It’s tough now because interest rates are going up and buying a business is expensive. And on top of that, a lot of sellers are asking for way too much money for their businesses, which is making it harder for buyers to get a good deal.

Almost half of us (48%) think we’d be better off waiting another year to buy a business. It’s like when you’re house-hunting and you can’t decide if you should wait for a better price or just bite the bullet and pay more because interest rates are going up.

Retail businesses are really feeling the pinch too. They’ve noticed a big drop in sales compared to last year and the previous quarter. Their revenue has gone down a lot and they’re having trouble making money.

Even though things may seem grim, I want to tell you that it’s important for business owners like you to stay hopeful and look for opportunities to grow, while also being mindful of the risks involved. I believe that these risks might actually lead to something positive. Let me explain.

A recent report suggests that many Baby Boomer business owners are expected to sell their businesses. This means that there could be a wave of opportunities for new entrepreneurs like you. Although some initial predictions show that the market might be slowing down, there’s still a chance for things to pick up again.

I’ve spoken to some business owners, and guess what? Almost half of them, around 48%, are selling their businesses because they’re retiring. This means that there might be even more businesses going up for sale. And that could be a chance for you to find the perfect business opportunity.

So, my advice to you is this: keep your eyes open for growth opportunities, even in these uncertain times. Don’t be afraid to take risks, because they might just lead you to success. Who knows, you could be the next big thing in the business world!