The last couple of years have been difficult ones for small business owners, and that may be an understatement. While most businesses are recovering well from the pandemic, they must now battle a labor shortage, shipment delays, and rising costs of both materials and labor. It’s no wonder that so many business owners are burnt out, and re-evaluating their companies as they consider selling. With all of the uncertainty in our current economy, will 2022 be a good year to sell a business?
This past year has seen a surge in buyer demand for profitable businesses. This includes a big uptick in cash offers, mostly from private equity firms looking to spend a record amount of available cash. A significant portion of these buyers are also corporate refugees who have lost their jobs or were forced into retirement within the past year. A recent survey of business buyers showed that 44% identify as wanting to leave their current job to be more in control of their own future, and an additional 13% were recently unemployed.
This combination of investors and people looking to become first-time business owners has helped fuel the demand. At the same time, there are still fewer sellers on the market than there otherwise would have been due to COVID-related challenges. Many owners, still focused on recovery, are still not prepared to put their businesses on the market. These circumstances are resulting in higher valuations and record-high sales prices.
The 3rd quarter of 2021 saw median sale prices go up 9% to a new all-time high. This has been primarily driven by restaurants, followed by service and retail businesses. The recovery from pandemic losses, sparked by low supply of businesses for sale and high buyer demand make this a great opportunity for business owners looking to escape burnout or retire, and exit at a high point.
The current labor shortage has been well documented, and is impacting every sector. According to Forbes, about 79% of small business owners surveyed are working more hours this year to overcome staffing issues. As an employer, you may be struggling to fill crucial openings, driving your desire to sell. Despite the fact that this shortage is driving the cost of labor up, 47% of small business owners surveyed said their business is performing better than 2020. While many owners may choose to ride out these labor issues, you might decide that it’s better to sell now, rather than wait it out.
Operational Changes and Challenges
In the last year and a half, many business owners have shifted to a more digital environment, to adapt to the pandemic. Most of these changes are becoming permanent, especially as these same owners are having to adapt to other challenges, like the labor shortage. Digital solutions have helped businesses to become more efficient, more staff-friendly and more profitable. Subsequently, companies who have adopted them have become more valuable in the minds of buyers. Of those surveyed, 64% of buyers said that a strong online footprint plays an important role in their purchase decision.
If you are not ready or willing to make the investment in a digital environment, or don’t see how it would help with your business, you can still attract buyers who value this feature. Businesses that are excelling without a digital presence could present an easy growth opportunity for an investor. If the business is already profitable without it, they could experience a quick value-add after acquisition. If changing your operations to accommodate technology, or any other industry trends is something you’re not interested in doing, it might be a good time to capitalize on this seller’s market while it lasts. You could avoid having to invest in the improvements and get out while buyer demand is high.
Timing the Market
While timing the market is not something easily done, it is important to ‘read the tea leaves’ and be aware of the current environment. There is a potential for capital gains taxes to go up, although this would likely only apply to taxpayers with income over $1 million. Also, while buyer demand and valuations are up, there’s no telling how long this could last. As more businesses recover from their losses during the pandemic, more are expected to sell. Of owners surveyed, 28% said they plan to sell in the coming year due to retirement or burnout. A drastic influx of sellers could level off valuations. Florida is also experiencing a population boom right now, helping to prop up buyer demand even more. As real estate prices go up and other states continue to recover from the pandemic, this boom might also level off. In summation, if you are thinking about selling your business, consider doing it right now, and striking while the iron is hot. Like all market trends, what goes up, must come down at some point.
Corporate Investment Business Brokers (CIBB), headquartered in Fort Myers, has been helping Southwest Florida business owners from all industries sell their businesses profitably for over 35 years. If selling your business is an idea you have been tossing around for a while, contact us to see if the time is right for you. While the market is great right now, everyone’s situation is different, and it may serve you better to wait. Our free business valuation estimate can help you decide if you are ready.
Looking to Sell a Business?
Complete the form below to find out what it’s worth with a FREE, no-obligation, 100% confidential business valuation estimate.