2016 Buyer-Seller Confidence Index: Small Business Sellers Remain Confident in Current Market but the Gap is Closing as Buyers Seeing More Realistic Asking Prices
BizBuySell
September 27, 2016
Both Buyers & Sellers Say Election Result Could Change Their Plans in the Market, Data Shows a Clinton Win Could Lead to More Sellers in 2017
San Francisco, CA – BizBuySell.com, the Internet’s largest business-for-sale marketplace, announced today the release of its 2016 Buyer-Seller Confidence Index, a national indicator of small business buyer and seller sentiment of the current business-for-sale environment. The confidence index is calculated by evaluating survey responses of more than 2,000 people interested in either buying or selling a small business. A separate score is calculated for both current small business owners interested in selling and prospective buyers currently exploring the market. Each group’s score ranges from 0 to 100, with 100 representing a perfect environment for buying or selling a business and a score of 50 representing neutral confidence.
This year’s survey results show that while sellers continue to feel more confident than prospective buyers in the today’s market, the gap is closing. The 2016 Seller Index stands at 59, down slightly from 62 in 2015, while the 2016 Buyer Index grew to 49, up from 47 a year ago.
Overall, the Seller Index did drop three points from last year, but the 59 score remain higher than the 56 reported in both 2013 and 2014. In fact, nearly 60 percent of respondents said they are confident that they would receive a price that met expectations if they sold their business today. A majority (65 percent) also believe that they could get either the same or a higher price than they could last year.
Looking at the Seller Index’s slight dip more closely, owners appear to be a little less confident in the future than they were last year. In 2015, 59 percent of sellers believed they could wait a year and receive a higher price for their business. In 2016, that number dropped to 48 percent. Concerns of those with lower confidence include fear of a depressed small business environment and economy (38 percent), increasing costs (31 percent), declining sales and revenue (22 percent), changing wage regulations (17 percent) and changing healthcare regulations (15 percent).
Similarly, this year’s survey shows that almost 48 percent of owners believe selling right now would be difficult in terms of time, effort and expense. Just 40 percent believed the same in 2015. So what is making it more difficult? The top reason why owners said they couldn’t sell right now was that they didn’t believe they could get enough money to fund their future plans, whether that be retirement, a new venture or another purchase. Others said they couldn’t find a buyer right now or didn’t believe their business was performing well enough.
“While the Seller Index fell a few points, overall optimism remains,” Bob House, President of BizBuySell.com, said. “We’re seeing rising financials from most of the businesses sold on our marketplace this year so it makes sense that now would be viewed as a good time to sell.”
Prospective Buyers Noticing More Acceptable Asking Prices, Improving Small Business Economy
As is evident by the increasing Buyer Confidence Index score, buyers appear to be growing more confident they can hold their own at the negotiating table. Seventy-three percent of buyers said they would be able to buy a business today for an acceptable price, a slight increase from the 70 percent that said the same last year. When asked what makes small business sale prices more acceptable this year, most potential buyers credit owners for setting a more realistic price (38 percent) while others attribute the change to an improving small business environment and economy (35 percent), less demand/competition for listings (29 percent) and increased supply of businesses for sale (23 percent). Interestingly, sellers list the small business economy as a concern but buyers are seeing it as a positive.
In the bigger picture, however, buyers remain less confident in the market than sellers. Naturally, buyers are suspect of the other side as 60 percent believe small businesses for sale are currently overvalued, compared with just 4 percent who believe they are undervalued. Because of this, nearly half of buyers said buying a business right now would be difficult in terms of time, effort and expense. Many didn’t see the environment changing either as only 29 percent said they thought they can get a better deal if they wait a year to purchase. Most (56 percent) said prices would likely stay at their current values in 2017.
For those buyers who are still waiting to pull the trigger, the key constraint appears to be limited supply of suitable businesses as opposed to availability of financing. This year’s top inhibitor to ownership was simply not finding the right business (44 percent), much more common than those who said they don’t have available capital (25 percent) or can’t find funding sources (7 percent).
“It’s good to see the gap closing between buyers and sellers and a more balanced market forming,” House said. “As we move closer to 2017, it will be interesting to see how variables like the election results impact confidence.”
Buyers & Sellers Say the Election Result Could Determine Their Plans to Enter or Exit Small Business Ownership
With the U.S. Presidential election fast approaching, it’s possible these confidence numbers could be influenced by the winner. It appears both buyers and sellers would be more confident under a Donald Trump presidency. Fifty-seven percent of sellers and 54 percent of buyers said Donald Trump is the candidate who would most improve the small business environment. Comparatively, just 27 percent of sellers and 31 percent of buyers feel Hillary Clinton would most improve the small business environment. Further, 53 percent of sellers and 47 percent of buyers believe the small business environment would worsen if Hillary Clinton was elected.
Perhaps more telling than voting direction is that a significant number of buyers and sellers say they will actually change their ownership plans based on who wins, specifically if the less-favored Hilary Clinton takes office. In fact, one in five sellers said they would be more likely to sell their business if Hillary Clinton is elected President. Similarly, 31 percent of buyers said they would be less likely to enter small business ownership if Clinton wins.
Clinton supporters said they might take similar action should Donald Trump win. Sixteen percent of current owners said they would be more likely to sell and 15 percent of buyers said they would be less likely to buy if Trump wins the election.
So just why is the election result so important to small business owners and prospective buyers this year? When asked what issues were most important to them, both parties list tax reform, health care, economic policies, and jobs in that order.
Sellers Not Fond of New Overtime Regulation While Buyers Actually Support Them
Beyond the election, another issue impacting the small business community is the new Department of Labor overtime rules. Effective December 1, 2016, the new rules mandate any employees making less than $47,476 annually must be paid at least time and a half their regular rate of pay for any hours worked in excess of 40 a week.
Not surprisingly, small business sellers (the owners soon to be directly affected), were more likely to be against the changes. More than a third (37 percent) were against the changes, while 29 percent were in favor of the regulation changes; 22 percent have no opinion and 11 percent said they were not aware of the changes. Looking at the future, almost half (48 percent) of soon-to-be sellers believe the new overtime regulations will decrease the value of small businesses.
Buyers, on the other hand, were more likely to agree with the purpose of the overtime changes. In fact, most (41 percent) prospective buyers are in favor of the overtime changes, and the majority (80 percent) said the changing rules will have no effect on their plans to purchase a small business. It’s possible these buyers see a bargaining chip for the future purchase. Forty-eight percent said the overtime changes will decrease the value of small businesses.