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2018 Is a Great Time to Sell Your Business
The current strength of the American economy has created a high level of confidence among would-be entrepreneurs. The unemployment rate is down to 3.8 percent and the producer price index is up by 0.5 percent in May 2018, as noted by the Bureau of Labor Statistics. That makes 2018 a great time to sell your business. Factors such as the growing IT and medical industries, as well as many baby boomers reaching retirement age and looking to invest in a second career, help to create this uniquely promising seller's market.
The Effect of Rising Interest Rates
With interest rates climbing higher and expected to continue the uptrend, buyers are motivated to purchase businesses now rather than wait. When the Fed raises interest rates, it increases the amount banks are charged when borrowing from other banks. This cost is passed on to consumers applying for and receiving loans. According to Business Insider, banks also are less eager to lend money because they earn more by keeping cash in reserve.
Buying now rather than later simply means the buyer ultimately pays less in interest for the purchase, and it is expected to be easier to get a loan now before rates climb higher.
Seller Market Sentiment Is at an All-Time High
Seller market sentiment refers to the attitude business owners have about selling their companies. According to the Market Pulse report put out by the International Business Brokers Association, seller market sentiment has reached an all-time high in four out of five market sectors.
Too Much Demand and Not Enough Supply
Some industry experts even have noted that there aren't enough good opportunities available to meet buyer demand. This supply shortage puts buyers in the position of offering premium prices with little to no opportunity to negotiate since someone else will probably snap up the business if you don't.
The Baby Boomer Effect
The shortage of opportunities compared to the number of interested buyers creates a sense of urgency for those interested in entering the entrepreneurial waters. Many waiting buyers come from the ranks of the Baby Boomers who are reaching retirement age. About 10,000 Boomers retire daily, but there's a lot more to the story.
- The group of Boomers seeking the chance to start a second career after retirement and who are investing retirement savings in their new enterprises are called "encore entrepreneurs" by AARP
- AARP notes that the Baby Boomers show a higher rate of entrepreneurial activity than the 20 to 34 age group that includes millennials
- Baby Boomers also find it easier to get loans, with one recent study finding financial institutions approved younger loan applicants between 16 and 23 percent of the time while loan applicants over age 60 were approved 30 percent of the time
- As the second-biggest market segment, according to the Department of Labor, Baby Boomers bring a powerful amount of spending power to the business-buying market
Businesses Are Selling at or Near Asking Price
It's getting harder for interested buyers to find successful businesses to purchase because values are being driven upward by the power of supply and demand. Final sale prices for the first quarter of 2018 came in between 89 and 100 percent of the seller's asking price.
- The businesses referred to as lower-middle market companies did the best in the first quarter of 2018
- These are the businesses with values between $2 million and $50 million, and they achieved 100 percent of the expected benchmark prices
- This trend continues in higher-value businesses as well, because there aren't as many businesses available, but the number of hopeful buyers keeps increasing
If you're considering selling your Phoenix business, this is an ideal time to do it because the seller's market won't trend upward indefinitely. Contact a professional business broker at LINK Phoenix by sending an email to email@example.com or calling (480) 686-8062.