Expectations for Business in 2023
BizBuySell just released its latest insight report, which tracked sales and growth in 2022 and compared it to the prior year. Overall, we are seeing a high demand for service-based businesses as well as an increase in restaurant business sales. The insight report also reveals what business brokers across the country are expecting for 2023 and beyond.
Data on Service Business Sales
In 2022, 39% of the acquisitions tracked by BizBuySell were service businesses, and their transactions were 7% higher than 2021. The service sector typically includes predominantly financial and healthcare related businesses. These types of companies are usually considered to be low-risk.
Across the map, buyers were willing to pay more for service businesses last year. In fact, the median sales price for service businesses rose 4% over 2021. It’s interesting to note that the sales prices were even higher than the pre-pandemic levels. Also, there is a trend towards buyers seeking out socially responsible and environmentally conscious businesses.
Data on Restaurant Businesses
Restaurant businesses also did quite well in 2022. In fact, the acquisitions of restaurants jumped 20% over 2021. They previously had plummeted 38% in 2020. While these numbers are strong, they are still 21% lower than before COVID.
Restaurant businesses also had less time on the market. The median days were 169 instead of 176 the year before. Restaurants also sold for more money. The median revenue for closed transactions was up 7% and the cash flow was up 13%. It seems that the general consensus is that dining out is popular again after years of struggles due to people avoiding meals in public.
Expectations for 2023
The conclusion of this data collected about 2022 is that buyers no longer will benefit from sitting it out. Higher interest rates are expected to be more and more of an impact for buyers in 2023. The good news is that most experts are expecting rates to get better in 2024.
Business brokers surveyed by BizBuySell expect that the market in 2023 will continue at the same place as it did in 2022. Many sellers will seek to retire. The concern of a recession should also motivate more baby boomers to sell. In fact, 45% of owners are saying they are selling to retire. At the same time, buyers will be looking for profitable companies that will grow.
The data revealed by BizBuySell indicates that those who are buying businesses may currently have the upper hand. In fact, 47% of brokers say that their view is that the market has shifted towards buyers. They attribute this to rate increases. They are finding that the majority of buyers are saying that current businesses are overpriced.
Sellers Must Be Flexible
The insight report shows that overall business brokers believe there is pressure on sellers to be more flexible in their pricing and terms. As always, seller financing is essential. In fact, 90% of buyers are saying it’s important for owners to offer this option to them. 95% of brokers echo this sentiment.
It should come as no surprise that businesses with strong financials are in high demand. When these businesses are considered recession proof, this fact is even more true. But even sellers with the strongest businesses may still have to consider offering financing or adjust prices due to the higher rates. Sellers who want to sell in the near future, of course, should begin preparing their exit now.
Copyright: Business Brokerage Press, Inc.
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5 Elements for Buyers to Investigate
When you’re in the process of buying a business, it’s important to stay logical. No matter how good the opportunity may seem at first glance, be sure to carefully evaluate the business in a step-by-step manner. Regardless of how excited you might be about the prospect of ownership; you’ll want to have your guard up when you go through the due diligence process. Let’s take a look at 5 of the most important questions to ask yourself before signing on the dotted line.
1. Do you have a personal interest in the business?
Needless to say, owners have made businesses successfully thrive even if they lack a personal interest in what is being sold. However, you might want to stop and ask yourself if you do indeed have a passion for the goods or services offered by the business in question. If you are uninterested, you may find it harder to make a long-time commitment.
2. What is the business plan like?
It’s helpful to see the goals of the current owner and evaluate which of these goals have actually been achieved. If there is no business plan, this should give you pause.
3. How does the business perform?
Take a look at the business’s overall performance. Do you get the feeling that the business requires many hours of intensive work from the owner? If so, remember that this owner putting in all of those hours could be you in the near future. Is there a reliable manager to oversee operations in your absence?
4. What are the demographics?
Who are the key customers? Are there several main accounts that the business depends upon or a wide variety of customers and clients? Needless to say, if the business relies on just a few key accounts, this could be problematic if things were to change. Further, do you see a clear way to add new customers in the future? Before you buy a business, you’ll want to feel confident that you can help it thrive and grow.
5. Are you satisfied with the financials?
Once you’ve successfully signed the necessary written agreements, you’ll want to take a deep dive into the business’s financials. Make sure that everything has been provided including:
- Tax returns
- Profit and loss statements
- Balance sheets
- Bank statements
The bottom line is that you will want to be careful when purchasing a business and watch for any red flags. The last thing you want is to make a hasty decision that you regret later on.
Copyright: Business Brokerage Press, Inc.
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What You Need to Know About Partnership Agreements
There have been countless instances when someone has gone into business with a relative or close friend and made the mistake of skipping a formal agreement. No matter how good a friend may be, you will always want to get the terms of the partnership in writing. A partnership agreement is a vitally important document that is designed to protect all parties. It will reduce the possibility for disagreements or misunderstandings down the line. When you make sure you have everything documented legally, it will greatly serve you and your partner(s).
Building Your Partnership Agreement
Your partnership agreement should first and foremost address the general rules of the partnership. This means it should cover who owns what, and how you will handle profits and losses. It should cover the basics of issues that may seem obvious, such as what are each partner’s roles and duties. And it should also address the details pertaining to resolving small potential problems that you may never expect to actually arise.
Financial Issues
A good part of your partnership agreement should address issues related to money. As you can imagine, misunderstandings about earnings can quickly become huge disagreements if the details are not plainly stated in writing. On a very practical level, you’ll want your document to cover what percentage of earnings both you and your partner will receive. You will even want to go into detail about how money is distributed. What if money is required to keep the business operational and thriving? You’ll want to cover the details of who will contribute any necessary funds and how this will be handled.
Other Decisions
Another decision you’ll want to make now will cover the nature of decisions themselves. For example, how will you make business decisions? Is it a vote, and if so, how does that vote work? You can also include other situations that could arise, such as what happens in the instance of the unfortunate death of one of the owners? What happens if you decide to bring in an additional partner or partners?
Getting Assistance with Your Legal Documents
While it might seem possible to create your partnership agreement on your own, the best thing you can do is hire a competent professional to help you. That way you’ll know that your partnership agreement is written in the most accurate way possible.
When you have this document established, you can proceed with your partnership with confidence that any potential problems down the line are addressed. It may take some extra time and consideration now, but in the long run, you’ll be able to run your business smoothly and more efficiently. The fact of the matter is that if you address everything now in a partnership agreement, it will benefit your business for years to come.
Copyright: Business Brokerage Press, Inc.
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A Look at the Market Pulse Report
The Market Pulse Report Survey is a resource that has a variety of information that business brokers and M&A advisors regularly utilize to better understand the business landscape. The most recent survey was conducted April 1st to April 15th 2022 and had 360 broker and advisor respondents. It also marked the 40th edition of the quarterly report. The Executive Summary of the report can be accessed here https://www.ibba.org/resource-center/industry-research/
The Main Street Market
One notable fact included in the latest report is that in the Main Street market, between 70% to 80% of buyers are likely to come from within a 20-mile radius. However, with larger companies, it is common for buyers to originate from a distance of over 100 miles away or greater.
The survey also indicated there are two key “headwinds” that businesses are currently facing. These include labor shortages and supply chain issues. Not surprisingly, labor issues are currently creating problems for organic growth. Likewise, supply chain issues can cause prospective buyers to shy away from a business.
The Profile of Current Buyers
The survey also indicated that Main Street buyers not only include the “typical” first-time business buyer. These individuals are often looking for a job in the form of owning a business. Serial entrepreneurs who have made money off previous deals are also now seeking to jump back in and buy another business. The survey indicates that about one-third of buyers who purchased businesses in the $500K to $1M range are serial entrepreneurs.
Additionally, there is a great deal of money flooding into the industry. The money is mostly coming from private equity, family offices, and corporations. Feeling burned by the lack of bank credit by the 2008-2009 economic downturn, these buyers don’t want to get caught in a similar situation again.
A Seller’s Market
The survey indicates that it is currently a seller’s market and that record setting multiples have been occurring. In Q1, an impressive 97% of businesses were receiving their asking price. However, nothing lasts forever. If you’re considering selling your business, it’s a good idea to start making progress now before this trend stops benefitting sellers.
Even with the strong sales track record last quarter, it’s important to note that a fast sale is still improbable. Even in the best economic conditions, it typically takes many months to sell a business.
There are many factors currently benefiting sellers, such as low interest rates, SBA involvement, and people not wanting to work for corporations. However, it’s important not to wait for the “right moment” as often that moment never comes.
It’s always a good idea to begin taking steps to prepare for the sale of your business as soon as possible. This can make a tremendous difference toward fostering a positive final outcome.
Copyright: Business Brokerage Press, Inc.
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Three Reasons Why You Might Want to Own a Business
Have you been thinking that business ownership is for you? Many people are committed to the idea of owning a business and work hard to pursue this goal. Of course, the path towards buying a business is indeed complicated and requires a significant investment of not only money but also time. As a result, you’ll want to ensure that you are fully committed to business ownership before beginning the process. Let’s take a look at some common reasons why individuals choose to buy a business.
Desire to Grow Your Income
Most people will say that they would like to make more money. However, keep in mind that while owning a business will likely mean you grow your income, it also requires a significant amount of work, especially in the early stages.
Research shows that the longer you own your business, the more profits you will generate. Those who have owned their business for more than a decade will typically earn more than 100K a year. Of course, owning a business always comes with a degree of financial risk, but if you do successfully run your company for a series of years, you will likely succeed financially. Just be prepared for the possibility that the first few years may not generate as much income as you had hoped.
On the positive side, owning your own business allows you to have control over your financial destiny. You have the ability to make decisions that will grow your business
Interest in Shaping Your Lifestyle
When you work for someone else’s business, the way your life is organized is dictated by the rules and regulations of the company. For example, you may want to work at home, but your job requires you to spend 40 hours a week in the office.
If you want to make key decisions that impact your day-to-day life, owning a business will be quite attractive to you. You will be able to decide not only where you work, but also how many hours you work and with whom you work. You have the power and ability to shape many aspects of not only your life, but the life of your employees as well.
You are Willing to Take on Some Risk
The personality of a typical business owner is a person who is comfortable with taking on some risks. After all, not all businesses succeed. At some level, you are always risking your time, money, and energy. Of course, this aspect will vary dramatically depending on the kind of business you acquire.
It is also important to consider that many business owners find that they are working around the clock. They simply cannot go home and forget about their job at the end of the day. In sharp contrast, they are always on call and actively thinking about their business and relevant decisions. You also may not get a paid vacation or sick days.
Guardian Life Small Business Research Institute studied the ideal personality traits for a business owner and found that successful owners are action oriented, curious, self-fulfilled, tech-savvy, and future focused. They surveyed over 1,000 small businesses to generate this data. If you resonate with these traits, it is likely you are indeed cut out to own a business.
Copyright: Business Brokerage Press, Inc.
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