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2016 was a good year to sell a business, and what it means for 2017

Posted on March 7, 2017

Source: Boston Business Journal

Written By: Bob House

After consecutive months of steady growth, the BizBuySell Q4 2016 Insight report revealed a record 7,842 closed small-business transactions were reported in 2016, the highest yearly total of small- business sales since BizBuySell first started tracking data in 2007.

These transaction numbers top 2014’s previous high by 4.6 percent, and indicate the market continues to benefit both buyers and sellers. As more look to enter and exit small-business ownership in 2017, momentum will likely continue.

Here are three key findings from the 2016 report:

1. 2016 was a good year for small businesses

The median revenue of businesses that were sold in 2016 increased 5.2 percent to $472,798 from a year ago. Small-business cash flow also improved in 2016. The median cash flow for sold businesses rose from $102,000 in 2015 to $107,551 in 2016.

While these financials likely attracted buyers, owners did not respond with higher prices. The median asking price remained flat from 2015 at $225,000, while the median sale price increased a mere half a percentage point to $200,000. These figures put the average sale-to-asking price ratio at 92 percent. The strong ratio indicates the market is becoming more balanced, with both parties coming closer together in their assessment of fair market value.

2. Median days on market fell

The time it took for a business to sell dropped to 160 days at the end of last year, an 11.6 percent drop from Q4 2015. That’s also a sharp decrease from earlier this year when the median days on market stood at 188 days in the first quarter. Although this drop is most likely a consequence of both buyers and sellers wanting to close on a deal before the year-end, it will be interesting to track how the time to sell changes in 2017.

3. A robust supply of listings for 2017

The fourth quarter of 2016 experienced a 7.8 percent year-over-year uptick in business listings, indicating there’s still a healthy supply of desirable businesses available. As we move through 2017, a steady supply will likely persist as more baby boomers look to exit small business ownership for retirement.

In fact, according to BizBuySell’s December survey of nationwide business brokers, 70 percent attributed at least a quarter of their closed sales to baby boomers, and a resounding 98 percent expect the same amount or more to exit their business in 2017. With buyers attracted to stronger financials and an increasing number of millennials looking to enter small business ownership, signs point to a well-balanced market.

While 2016 was a record year, indicators suggest this momentum will continue into the new year. Seventy-nine percent of business brokers expect the number of business-for-sale transactions to improve again in 2017, according to the previously mentioned broker survey. Almost two-thirds of brokers also reported a belief that the Trump administration’s policies will drive more buyers to the business-for-sale marketplace. Many buyers and sellers also said they’re more optimistic about a Trump presidency. In fact, prior to the election, 54 percent of buyers and 57 percent of sellers believed Trump would improve the small-business environment.

Both buyers and sellers ranked tax reform, health care, economic policies, and jobs as the top political issues they’d like to see the new president address. While there are many issues to watch under the Trump administration, currently all indicators point to a bright future for small businesses overall.

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