Industry experts in business sales keep projecting that in the next 5-7 years, we will have more businesses on the market than we will have buyers for, once the baby boomer generation moves towards retirement and are ready to sell their businesses. That obviously creates a buyer’s market situation, which is certainly not ideal for sellers who are ready to retire and enjoy some much-deserved leisure time. However, what COVID has created in 2020, which we see continuing into 2021 is a complete buyer tsunami, with not enough desirable businesses to go around. We are deep in a seller’s market for thriving businesses, with a record number of buyers in the marketplace. Here we break down what those record numbers look like, and what that means for business buyers and sellers.
Looking at the Numbers
At Green & Company, the number of listings we have maintained over the past several years has stayed pretty steady, as we sell our business listings and acquire new listings at a pretty even rate. So, we can look at the historical number of buyer inquiries we have coming in and it is pretty obvious that we have seen an incredible boom in the number of buyers interested in our business listings. From January 2020 to January 2021, our monthly number of buyer inquiries are up 84.7%. From the end of 2019 to early 2021 we have seen an increase of nearly 150%! Last month, in January 2021, we had the most buyer inquires in a single month ever.
The pandemic has created a historic opportunity here in Florida, because more people than ever are looking to relocate to the Sunshine State and people here are wanting to take control over their own financial destiny by owning and operating a business, especially one that has survived 2020.
Incredible Exposure for Listings
With record numbers of buyer inquires coming into our brokerage, our current business listings are getting unprecedented exposure to prospective buyers. We can and do track all of the metrics and online traffic that our listings get, and we even share those numbers with our sellers. We can see how many times the listing has been viewed, clicked on, more information requested etc. That then gives us an idea of how popular a certain listing is, and it can even tell us vital information about what buyers in today’s market are looking for. This information allows us to adjust and tweak marketing and pricing strategies when needed.
Our listings are getting more views and interest than ever before, in fact, almost three times as much traffic as our listings got in 2019. So, our advice to sellers who are thinking of putting their business up for sale in 2021: get it listed as soon as possible, in order to take advantage of the record number of buyers out there in the marketplace. There has never been a better time to reach the most buyers possible, which will increase your chances of selling exponentially.
Buyer Competition Is Steep
In this seller’s market, buyer competition for the best businesses can be intense. Today’s buyers are seeking out businesses that have been COVID-resistant, who have remained successful throughout the past year. Buyers are now really taking a look at the numbers and buying with their heads and not their hearts. We are seeing much less of the “passion purchases” of businesses they would enjoy running because they are fun or exciting. There has been a more calculated investment-type thinking shift when it comes to which businesses they will consider purchasing. That makes healthy businesses in high-demand and the buyer competition for those businesses has increased. Most of these buyers are either first time business buyers or investors who plan to be absentee owners, so many of these buyers are looking for businesses to purchase that have a trained staff and management in place. Competition for businesses that fit that criteria is even more steep.
Higher Prices for Thriving Businesses
As one could imagine, buyer demand and a limited number of thriving businesses to purchase has not only created increased buyer competition, but it has driven up the purchase prices of these businesses. According to the 2020 BizBuySell Insight Report, the median sales price in 2020 rose 12% from 2019. Fueling this increase in the sales price is a 10.7% increase in the sold business’s cash flow or owner benefit compared to the average in 2019, as the purchase price of a business is normally derived from a multiple of the cash flow or owner benefit. For businesses that are thriving through the pandemic and beyond, this means that their purchase prices are staying strong.
Businesses that have seen a dip in revenue for 2020, and have yet to recover, need to understand that their business is unfortunately not going to benefit from this rise in the median sales price, because it directly relates to their gains in owner benefit. However, if these business owners are willing to price their business competitively, it means that they could have a chance of selling in a market with so many buyers looking for a great deal.
As always, the best course of action, if you are thinking of selling your business in 2021, is to speak with a reputable business broker who can help you navigate this historic moment in business sales.