Author name: erica

The business for sale market grew modestly in 2022 with closing transactions up 4.7% over 2021, and 19% above 2020 sales. However, sales are still 7% below the 2019 pre-pandemic levels. With increasing interest rates and inflation, momentum of sales began to cool in the second half of 2022 with a reported total of 9,054 transactions, still an increase over 2021’s total of 8,647 transactions. While the number of deals closing in 2022 was up, the median sale price dropped 3% to $315,000 over 2021.  Sellers have been feeling the impact of inflation and rising interest rates on business valuations as the cost of capital became an issue in 2022. Increasing capital rates began causing the downward pressure on business valuation multiples. The median revenue of businesses sold in 2022 was $650,000 a 2% drop from 2021, with the average revenue multiple dropping from .67 to .65 on business valuations. The median cash flow dropped 1% from 2021 ending 2022 at $148,765, with the average cash flow multiple dropping from 2.55 to 2.53.  Source: BizBuySell

The Fed raised its benchmark federal-funds rate by a quarter point to a range between 4.5-4.75% to try and slow the economic growth to a below-average pace to help weaken demand and attempt to restrain inflation. The economy appears to have more momentum than previously anticipated with January reporting a booming labor market with employers adding 517,000 jobs last month, and the unemployment rate falling to 3.4%, the lowest level since 1969. As more reports come in, Fed officials are looking to see if there is an increase in consumer demand leading to stronger economic growth that could have inflation continuing to rise in the start of 2023. If reports continue to show strong growth this could force the Fed to continue to raise interest rates to 5.25% in 2023 and hold it there until the end of the year. Officials must now decide if there is more that needs to be done to slow the economy by raising interest rates and keeping them higher longer, or if the next inflation problem could come from the economy continuing to add more than 200,000 jobs a month without an increase in the supply of workers, making the labor market tighter each month. Source: WSJ