Although the median sale price of small businesses has increased over the last six quarters, businesses are taking longer to sell, according to BizBuySell’s second quarter report.
A total of 1,935 closed transactions were reported in the second quarter of 2016, bringing the year-to-date total to 3,775, a slight improvement from the 3,743 reported in the first half of 2015.
If the current pace holds up, 2016 is on track to surpass the record set in 2014, with the current median sale price at $199,000, nearly identical to the $200,000 2015 midyear level.
“There are many variables that can slow or speed the process of selling a business; however, the data shows that as sales prices have increased over the last six quarters, so has the time to sell,” Bob House, president of BizBuySell and BizQuest, told eWEEK. “Whether this is correlation, causation or coincidence is not clear, but it is worth noting for sellers.”
He noted that in 2014, as the U.S. economy emerged from its recession, the market saw a lot of pent-up demand, which drove down the number of days a business was on the market.
“Many buyers had previously been sitting on the sidelines eager to buy but unable or unwilling to pull the trigger on a purchase during economic uncertainty,” he explained. “We may have worked through some of that pent-up demand and could be returning to a new, more stabilized activity level. Or, it could be that a higher supply of listings is leading to a longer time on market.”
Using BizBuySell’s data as a benchmark, sellers should expect the process to take about one year, from the time they decide to sell to the point where they actually find a buyer for their business.
“Strong small-business financials and a strengthening U.S. economy are certainly giving buyers confidence in the market and driving this uptick in small-business sales,” he said. “Retiring baby boomers are also continuing to play a substantial part in this, as they’re providing the market with a steady supply of listings.”
According to the company’s recent study on the demographics of small-business buyers and sellers, baby boomers (those 60+ years old) account for a quarter of small-business sellers—a significant number that likely will grow in the coming years as more boomers reach retirement.
“I think it’s too early to tell if the election and political climate will impact the small-business market. However, the election’s results will likely impact buyers’ and sellers’ confidence in the market,” House said. “Many small businesses are worried about increasing labor costs that are impacted by changing regulations in health care, tax reform and minimum wage laws.”
He noted some business owners could be motivated to either enter or exit small-business ownership based on their view of the winner’s future policies.