As we steam forward into the last month of the 1st quarter of 2022, we thought it was important to look back at 2021 and analyze the trends in the business sales marketplace. What have we seen take shape in 2021 is absolutely continuing to dominate 2022’s business sales climate as well. Let’s take a look at the numbers from 2021, the conclusions we can draw from them, and how they are shaping business sales in 2022.
2021 Business Sales by the Numbers
All of the data and information contained here is taken directly from BizBuySell’s 2021 Insight Report, which accounts for closed business sales nationwide.
U.S. business-for-sale transactions bounced back 14% in 2021 against ongoing COVID-19 fallout, hiring challenges, and supply chain disruptions. After modest gains to start the year, transactions accelerated 28% in the fourth quarter, eclipsing the pre-pandemic levels of Q4 2019. This end of year rally brought annual small business transactions within 11% of 2019, bringing optimism for a strong 2022.
A total of 8,647 closed transactions were reported in 2021, compared to 7,612 in 2020, with 2,364 occurring in the fourth quarter. In addition, sale prices grew 16% year-over-year to an annual record high of $325,000, as buyers competed for a limited supply of strong performing businesses. This according to BizBuySell's Insight Report, which tracks and analyzes business-for-sale transactions and sentiment of business owners, buyers, and business brokers.
Businesses that sold in 2021 continued to be those with strong financials. Compared to the previous year, the median cash flow of sold businesses grew 10% to $149,099 with median revenue up 2% to $625,943. As the pandemic lingered, buyers gravitated to businesses with reliable sales. Savvy entrepreneurs also sought out discounted businesses that offered prime real estate and other valuable assets despite poor performance.
Many business brokers surveyed expressed improved market conditions in 2021, with 62% reporting higher transactions than in 2020. Over half (53%) of those attributed growth to a strong demand for businesses that thrived during the pandemic. Forty-six percent (46%) experienced an increase in owners looking to sell, an encouraging stat given the lack of inventory has been the main barrier to market recovery to-date. An equal 46% experienced an increase in buyers as the Great Resignation, SBA aid programs, and low interest rates ignited demand.
Sale Prices Rise as Demand for Profitable Businesses Remains Strong
The business for sale market demonstrated slow, yet steady growth over the course of 2021, particularly in terms of buyer demand for financially healthy businesses. This trend became evident in the first quarter when sale prices surged a whopping 30% to a median sale price of $325,000, finishing the year at $324,500 in the fourth quarter.
Furthermore, despite 51% of surveyed owners being negatively impacted due to COVID-19 in 2021, key financials of sold businesses in the first quarter were the highest since BizBuySell began collecting data in 2007, with a median revenue of $688,020 and a median cash flow of $147,752. Both financial numbers remained historically high throughout the year but softened as sidelined businesses regained health and entered the market, reaching $656,559 and $150,000 in the fourth quarter respectively.
According to BizBuySell's Small Business Survey, 60% of buyers indicated profitability and strong financials as a purchase requirement, followed by trained and skilled employees (37%), great location owned (38%), and great location leased (36%). Eighteen percent (18%) desired a business discounted due to poor financials. Regarding the type of businesses buyers were seeking, the service sector was the top preference (37%), followed by restaurants (26%), and wholesale distributors (25%). The most popular included pandemic-resistant businesses such as liquor stores, gas stations, auto repair shops, and e-commerce businesses.
Buyers Face Limited Inventory as Owners Delay Exit to Focus on Recovery
While 2021 was a record-breaking year for small business sale prices, it was also a year for many owners to remain on the sidelines until financial performance improved. According to BizBuySell's small business owner survey, roughly half (52%) of small business owners say they were negatively impacted by the pandemic in 2021, while the other half were either positively impacted (25%) or not impacted at all (24%).
Even with President Biden's American Rescue Plan Act, which expanded the PPP program and introduced other federal aid programs, recovery has been uneven. While many businesses have wooed customers back through outdoor seating, delivery, or virtual options, they still face challenges. Whether through staffing shortages, supply chain delays, or COVID-19 surges, the pandemic continues to impact many businesses.
According to business brokers, these pandemic-related challenges were not the only factor keeping businesses off the market in 2021. While 38% attributed low listing inventory to owners being unable to sell due to poor performance, 46% believe many sellers had unrealistic expectations compared to current market values, and 15% indicating financing challenges.
Increased Demand Expected Due to Great Resignation and Serial Entrepreneurs
Over the past year, a record number of workers have left their jobs for a variety of reasons. At the same time, business ownership has been catching entrepreneurs by storm. Over 5 million entrepreneurs applied for business applications in 2021, the largest number ever recorded by the U.S. Census Bureau. At the same time, 21% of business buyers identified as being part of the great resignation and business brokers say 23% of their inquiries came from corporate refugees or newly unemployed seeking ownership.
Demand for existing businesses is expected to continue into 2022 as more entrepreneurs seek to acquire profitable businesses from retiring Baby Boomers. While some will be corporate refugees and first-time buyers, many are also existing owners looking to expand, as well as retirees looking for a second career. The majority business brokers (73%) expect an increase in the number of buyers hitting the business for sale market in 2022.
What this Means for Buyers and Sellers in 2022
This demand means that there has simply never been a better time than right now for business owners to list their business for sale. With record numbers of serious buyers paying top-dollar for businesses that are performing very well financially, a business owner’s chances of selling their business has never been higher. For a buyer in 2022, the market will stay competitive as long as the demand for quality businesses exceeds the number of listings available. In states that are currently seeing a massive population influx, such as Texas and Florida, this seller’s market is likely here to stay as the demand remains steady. We don't see these demands changing any time soon, so business owners, if you are thinking of exiting your business anytime in the near future, now is the time to consider it.