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2024 BizBuySell Insight Report: Modest Growth & Rising Valuations

   According to BizBuySell’s Insight Report, 2024 saw a modest 5% increase in the overall number of businesses bought and sold. The year closed with 9,546 transactions, representing a combined enterprise value of $7.5 billion—15% higher than 2023.    Transaction activity steadily grew in the first half of the year, with a 10% gain in Q1 and a 5% increase in Q2 and Q3. However, Q4 experienced a slowdown as uncertainty surrounding the presidential election tempered activity. While the Federal Reserve implemented three incremental rate cuts in 2024—lowering interest rates from 5.25-5.5% to 4.25-4.5%—the impact on the business-for-sale market was limited. In fact, 60% of surveyed buyers reported no change in their purchase timelines due to the rate cuts. Meanwhile, 17% said the cuts encouraged faster action, and 23% remained unsure. As election-related uncertainty faded, many buyers signaled readiness to return to the market. Despite these challenges, median sale prices rose 3% year over year to $345,000, and deals closed faster, with median days on the market dropping by 3% to 168 days. Multiples also saw gains with the average cash flow multiple increasing by 3% (from 2.49 to 2.57), and the average revenue multiple up by 6% (from 0.63 to 0.67).  With market conditions stabilizing and buyer activity poised to pick up, 2024 showcased resilience and optimism in the small business transaction space.

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PREPARING YOUR BUSINESS FOR SALE FROM DAY ONE

Owning a business isn’t just about building and growing—it’s about being prepared for the future, including a potential sale. Planning for a sale from the start not only supports long-term success but also fuels growth. Many people believe that building, growing, and selling are separate stages, but they’re actually closely connected. The things that make a business grow—like improving efficiency, building strong teams, and boosting profitability—are the same things potential buyers are looking at. By thinking about growth and sale preparation together, you’ll set your business up for success in both areas. A few key questions to consider for both growth and sale preparation include: 1.  Is Your Customer Base Diversified? o   For Growth: A diverse customer base reduces the risk of losing a large chunk of revenue if one client leaves. o   For Selling: Buyers want to see a stable, diversified customer base to feel confident about the business’s future. 2.  Is the Business Too Dependent on You? o   For Growth: If the business is overly dependent on you, it can limit the ability take on new projects and affectively grow the business beyond its current capacity. o   For Selling: Buyers want to know the business will thrive without the original owner. If it’s too dependent on you, they’ll worry about its stability after you leave. 3.  Do You Have Documented Processes and Systems? o   For Growth: Clear, documented processes ensure consistency, make training easier, and help the business scale. o   For Selling: Buyers see documented systems as a big plus because they make the transition smoother and reduce risks of disruption. Even if selling isn’t on your radar, an exit plan ensures your business can adapt to changes and remain profitable Every day you spend growing your business should also be a day spent preparing for an eventual exit. The same factors that drive growth—like strong systems, a solid customer base, and a well-functioning team —also increase value, making your business resilient and ready for any future opportunities. Source: BizBuySell

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SELLER FINANCING GAINS MOMENTUM IN SMALL BUSINESS ACQUISITIONS

   Recent data from BizBuySell’s survey reveals a shift in seller attitudes toward offering seller financing, reflecting a growing motivation to close deals despite market challenges. In 2024, 28% of sellers indicated they would consider offering seller financing, up from 24% in 2023. Simultaneously, opposition to seller financing has declined, with 40% of sellers now completely against the idea, down from 44% in 2023. This trend highlights a more flexible mindset, with more sellers keen to finalize transactions rather than wait on the sidelines.    The current economic environment, characterized by higher interest rates, has increased acquisition costs and pressure on business values. As a result, creating win-win deal structures has become critical to maintaining market momentum. Jon Pastoor, an M&A advisor at Calder Capital, observes, “With higher interest rates, we did see an effect of having more seller financing than in years past in order to reach a desired valuation. Seller sentiment seems to be picking up, and now with a potential drop in rates, I expect that to continue.”    Higher interest rates have made it more difficult for buyers to service debt, shifting the focus to deal structure and financing terms. John English, a Texas-based M&A advisor, notes, “It’s really more about debt service than purchase price. So, it boils down to rates, terms, or the willingness of the seller to finance themselves. We have crafted some highly creative deal structures, which makes us somewhat immune to other market forces.”    As buyers and sellers adapt to current market realities, the importance of flexibility and creative deal-making has never been more apparent. With a continued rise in seller financing, deals are moving forward, allowing both parties to navigate the challenges of higher interest rates while still achieving their goals. Source: BizBuySell Insight Report Q3 2024

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RISING CONFIDENCE IN THE SMALL BUSINESS ACQUISITION MARKET

BizBuySell’s Buyer-Seller Confidence Index, which surveys nearly 3,000 business owners and buyers on a 0-100 scale, revealed a rise in both buyer and seller confidence for the first time in years. Seller confidence increased 4 points to 50 from 46 in 2023, while buyer confidence increased by 2 points to 54 from 52. Currently, 54% of business owners feel confident they would receive an acceptable sale price if they sold today, while 43% expect an even higher price if they wait until next year. Katrina Loftin, managing partner and co-founder at M&A Business Advisors, explains how sellers and lenders are motivating buyers to move forward with deals: “We have definitely seen a shift from full price to a reduced price—typically around 10% less than asking. We are also seeing more buyers asking for seller financing at a rate lower than the SBA rate. Many banks have been offering incentives, so that has kept things moving.” Small business acquisitions continued to grow, increasing by 5% in the third quarter, marking the fifth consecutive quarter of growth. A total of 2,399 businesses were sold in Q3, with an enterprise value of $2 billion—20% higher than the same period last year. The largest acquisition sectors were service businesses (39%), restaurants (21%), retail (20%), and manufacturing (6%). Businesses sold in Q3 also reported stronger financials, with median revenue up 8% and median cash flow up 3.5% year-over-year. Despite the improvements in cash flow, median sale prices remained flat compared to last year and dropped 13% from the previous quarter’s record high of $375,000, settling at $325,000 in Q3. Robin Gagnon, co-founder and CEO of We Sell Restaurants, adds, “We have observed more sellers entering the market in Q3, and some are adjusting their pricing to reflect the realities of financing costs. Rather than holding off, many are motivated to close deals before any potential market shifts. While interest rates are a factor, they’re not halting transactions. Buyers and sellers are adjusting to the new normal, and deals continue to close when the financials make sense.” Source: BizBuySell Insight Report Q3 2024

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Record Growth in Q2 2024

                                       Business Sales Surge Amid Stabilizing Economy In the second quarter of 2024, the business sales market demonstrated remarkable growth, with 2,448 businesses sold, representing a total enterprise value of $1.9 billion. This marks a 20% increase compared to the same period last year, highlighting a dynamic and thriving market environment. A key factor driving this surge is the median sale price, which reached a record high of $375,000. This reflects a growing buyer focus on businesses with strong financial performance. A majority of buyers, 42%, indicate that financial performance is the most important factor, followed by 26% who prioritize growth potential and 15% who consider location as a top criterion. In today’s market, 69% of buyers view recession-resistant businesses as the most desirable opportunities, with 38% favoring thriving businesses. Buyers are increasingly willing to invest in high-quality enterprises that demonstrate robust revenue and cash flow, recognizing the long-term value these businesses can offer. Moreover, the financial health of sold businesses continues to improve. The median revenue of these businesses grew by 4% year-over-year, while median cash flow saw a significant 7% increase. These metrics underscore the appeal of well-performing businesses in the current market and the premium buyers are willing to pay for them. This heightened demand for premium businesses and moderate market growth can be attributed, in part, to signs of cooling inflation. The Bureau of Labor Statistics reported a drop in the Consumer Price Index (CPI) to 3%, signaling a more stable economic environment. As inflation pressures ease, businesses and consumers alike gain confidence, spurring investment and sales activity. The evolving market landscape offers both opportunities and challenges. Sellers are in a favorable position to command higher prices, particularly if their businesses demonstrate strong financials and growth potential. Buyers, on the other hand, are navigating a competitive market, seeking businesses that offer not only stability but also the promise of future returns. In conclusion, the second quarter of 2024 has highlighted a robust and evolving business sales market, driven by record high sale prices, improved financial health of sold businesses, and a more stable economic environment. As inflation pressures ease, both sellers and buyers are positioned to capitalize on the opportunities presented by this dynamic landscape, fostering continued growth and investment in high-quality enterprises.   Source: BizBuySell

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FLORIDA TOPS LIST FOR MOST BUSINESSES SOLD ON BIZBUYSELL

   Florida topped BizBuySell’s list of most businesses sold for the fifth consecutive year, selling 1,619 businesses, 37% more than California in second place. Florida’s three major metro areas accounting for the majority of businesses sold in the state were the Tampa Bay Area with 413 business sales, Miami-Fort Lauderdale with 392 business sales, and Orlando with 194 business sales. The top three selling industries in Florida were food and restaurant businesses with 386 sales, service businesses with 210 sales, and transportation and storage businesses with 195 sales. Additionally, Florida sold more online and technology businesses on BizBuySell than any other state in 2022 with 154 sales. According to Forbes magazine, Tampa Bay ranks first for emerging technology hubs, as proven by the fact that more technology (primarily e-commerce) businesses were sold here than in all of California, where only 23 businesses were sold. The “Silver Tsunami” of retiring Baby Boomers is expected to drive sales growth for small businesses in 2023 and beyond, particularly in Florida, since that is where money goes to retire. The state’s favorable tax treatment, strong economy, and warm weather may encourage some business owners to move to Florida prior to retirement. As a result, Florida’s business sales will continue to grow for many years to come. Source: BizBuySell

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FEDERAL RESERVE APPROVES 11TH INTEREST RATE INCREASE

In July, the Federal Reserve raised rates a quarter-percentage-point bringing the benchmark federal-funds rate between 5.25% and 5.5%. The Fed’s decision last month brought the interest rate to its highest level in 22 years, marking the 11th rate increase since March 2022. Jerome Powell, president of the Federal Reserve, indicated that it was too early to determine whether the hike would conclude a series of increases aimed at cooling the economy and lowering inflation. Powell has said ‘Inflation has repeatedly proved stronger than we and other forecasters have expected, and at some point that may change. We have to be ready to follow the data.”  Powell did not rule out another rate increase at the central bank’s September meeting, but he highlighted the amount of work the central bank had already accomplished, as well as the length of time it may take for monetary policy to cool inflation. While some Fed officials have proposed raising rates again at the September meeting, others support a longer pause as they believe the impact of the Fed’s rate hikes has not yet fully taken hold. With the Federal Reserve set to meet three more times this year, some officials are more likely to favor waiting until November or December to determine whether there should be another increase. Fed officials have been concerned that underlying price pressures may prove more persistent as a solid labor market allows workers to bargain for higher pay, making it harder to get inflation down further. It’s important for the Central Bank to continue to monitor how the economy performs over the coming months, since a slowdown in core inflation could create a new problem for the Federal Reserve if there is reason to believe the improvement will only last for a short period of time. Source: WSJ

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