Small Business Acquisitions Up 4.7% in 2022, Sale Prices Dip 3% Amid Inflation and Rate Hikes

The business for sale market grew modestly in 2022, with closed transactions up 4.7% over the previous year, representing a 19% gain since 2020, when many small businesses faced COVID lockdowns, yet still 7% below 2019’s pre-pandemic levels. The first half of the year experienced strong year-over-year gains, but as inflation surged and interest rate hikes took effect, momentum slowed in the second half.

A total of 9,054 transactions were reported in 2022, compared to 8,647 in 2021.  The year began with a YOY boom in transactions, up 27% in Q1 and 14% in Q2. Transactions then lagged in the second half of 2022, dropping 2% in Q3 and 12.7% in Q4. This according to BizBuySell’s Insight Report, which tracks and analyzes U.S. business-for-sale transactions and sentiment from business owners, buyers, and brokers.

Financial performance was rocky over the course of 2022. Median revenue dropped 11% in Q3 from Q2 and rose 3% in Q4, finishing 2022 down 2% year-over-year. Median cash flow dropped 3% in Q3 from Q2 and remained flat in Q4, finishing 2022 down 1% year-over-year. Similarly, the average revenue multiple dropped from .67 to .65 and average cash flow multiple dropped from 2.55 to 2.53.

According to business brokers surveyed, the 2022 market showed increased activity compared to 2021. About a third (33%) closed slightly more deals, while 22% closed significantly more deals. Most brokers (47%) attribute the increase to higher buyer demand for thriving businesses, while 41% believed it was due to an increased number of buyers entering the market.

“Motivated Baby Boomers are looking to retire. COVID seemed to increase their willingness to negotiate and strike a fair deal," added Gavin Raphael, Principal of Light & Raphael in Richmond, VA.

Sale Prices Dip as Rate Hikes and Inflation Put Pressure on Business Values

As the number of closed deals continued ticking upward in 2022, the median sale price dropped 3% to $315,000. While buyers are still on the lookout for good businesses that justify the higher cost of capital, sellers are feeling the impact of inflation and rising interest rates on business values.

Median revenue of businesses sold in 2022 declined 2% to $650,000 compared to $665,107 the previous year, and median cash flow declined 1% to $148,765, compared to $150,000, respectively. Similarly, the average revenue multiple dropped slightly to .65 vs .67 in 2021, and the average cash flow multiple dropped to 2.52 vs 2.55 in 2021.

“Cost of capital became an issue by Q2. The result is decreasing multiples. Sellers are just beginning to comprehend the discounts due to capital costs," said Terry Gunn of Gunn Business Brokerage in Nashville, TN.

“Rate increases have increased cap rates and are putting downward pressure on valuations. Cost of capital is affecting PE groups while loan rate increases are affecting debt service coverages for main street buyers," said a broker who chose to be anonymous.

While many owners are raising prices to make up the additional costs, others are more worried about losing customers and sales declining. In fact, 74% of owners surveyed say inflation is not easing.

Interest rate hikes are further compounding operations for owners, many who rely on lines of credit to operate are facing rising SBA loan rates. Over 53% of owners said rate hikes are negatively impacting their business.

One owner commented, “The cost of all of my lines of credit (including SBA) are rising significantly. With supply chain issues causing parts/equipment to have longer delivery cycles, I am often caught with things on my line of credit longer while we wait to get and install them."

In addition to these financial pressures, over 26% of business owners who took out COVID-19 Economic Injury Disaster Loans say they are struggling to repay them. 

Rate Hikes May Be Shifting the Market in Favor of Buyers

Given the inflation induced economic headwinds associated, those looking to buy a business may have the upper hand at the bargaining table. Forty-seven percent (47%) of surveyed brokers feel today’s market has shifted in favor of buyers, while only 17% feel it still favors sellers. The main reason attributed to rate increases.

“Economic uncertainty and changes in financing capacity do seem to be allowing buyers more leverage in approaching transactions," said an anonymous business broker. While pressures mount on both business values and the rising cost to obtain capital, dealmaking is becoming a challenge for both buyers and sellers. Yet, the burden of flexibility is more likely to fall on the seller. In fact, 59% of buyers surveyed say they believe businesses are overpriced.

“Debt service will be more difficult. Which will drive down the amount buyers are able to pay for businesses. Therefore, I think most business owners will have to either wait to sell or sell for a lower price," said Mark Kincannon of Resolution Equity Partners in Forth Smith, AR.

Seller Financing is Becoming More Important in Today’s Market

As more sellers come to terms with current market conditions, seller financing is given increased consideration. Of buyers surveyed, 90% feel it is important for owners to offer seller financing. An overwhelming majority of brokers (95%) say it is important in today’s market.

“For main street transactions, it's almost certain that the seller will need to carry at least 10% of the amount and may have to 'standby' for the life of the SBA/Bank loan. Without this seller financing piece, many transactions would not happen," said Sheila Spangler, Certified Business Intermediary at Murphy Business in Boise, ID.

While it may lead to a sale, there are risks involved with seller financing. A seller may find a buyer that is well-suited with industry experience, but short on cash reserves. However, if the business fails, the seller is forced to foreclose.

Demand for Service Businesses Remains Strong, Restaurant Deals Jump 20%

Service businesses accounted for 39% of all acquisitions, with transactions up 7% over the previous year, exceeding 2019’s pre-pandemic levels. The service sector, which includes healthcare, financial, and other essential services, is often considered a low-risk option and highly desirable during economic uncertainty.

Buyers also paid more for service businesses in 2022. The median sale price rose 4% over the previous year to $300,000, which is 33% higher than 2019’s pre-pandemic sale price of $225,000. Prices were backed up by stronger financials, with service businesses showing median revenue up 3% year-over-year and median cash flow up 3.4%, respectively.

“Some general trends noted in the market for small business acquisitions in recent years include an increase in the number of buyers interested in acquiring businesses in the service, healthcare, and technology sectors, as well as a growing interest in socially responsible and environmentally sustainable businesses," said Moe Bousaid of First Choice Business Brokers in Las Vegas, NV.

Restaurant acquisitions jumped 20% in 2022 following a 6.5% gain in 2021 – after plummeting 38% in 2020. Yet, this uptick is still 21% below 2019’s pre-pandemic levels. Restaurants also sold faster, with median days on the market moving from 176 to 169.

Restaurants showed stronger financials and sold at higher prices. Closed restaurant transactions showed median revenue up 7% and median cash flow up 13% over the previous year. Furthermore, the median sale price rose 14% to $249,000 compared to $220,000 the previous year.

This activity may suggest pent up demand for restaurant ownership. After nearly two years of struggling to draw in customers, dining out and gathering with friends is becoming popular again.

2023 Business for Sale Market Outlook

The business for sale market has been growing over the past year, however, it has also been weighted down by inflation and high interest rates, neither of which are expected to go away anytime soon. Prices are still accelerating, and more rate hikes are expected.

For buyers, this leaves little incentive to wait it out on the sidelines. As higher rates become more of the reality, many buyers will adjust their strategy and continue seeking out great opportunities, with most anticipating better rates in 2024 and the ability to refinance.

Sheila Spangler adds, “The increase in interest rates will continue to challenge buyers and sellers. However, as long as bank/SBA lenders continue to fund acquisition loans, the 2023 small business market should continue at the same pace as experienced in 2022. Buyers exiting from corporate jobs will continue to seek profitable companies with growth potential. Sellers will grow older and seek to retire."

While current economic conditions are worth considering, buyers should continue being on the lookout for good opportunities. Moreover, the possibility of recession may drive more sellers, including older Baby Boomers, to the marketplace.

Currently, 45% of owners say they are selling to retire. Furthermore, over 42% say we are already in a recession (vs 48% of buyers), while 33% of both owners and buyers believe we’ll enter one in 2023.

“Many more Baby Boomer Sellers are available to exit businesses and sell. At least 50% of my current Sellers are family operated businesses where the owner, a Baby Boomer, is looking to retire or exit," said Mark Mueller of CRE Resources, LLC in New Jersey.

For sellers, businesses with strong financials are expected to continue being in high demand. This may be especially true for service businesses, fast-food restaurants, and other ‘recession-proof’ businesses. Yet, higher rates may force some sellers to adjust prices and consider seller financing.

It's also important to remember that a typical sale can take 6-months to 1-year to complete. Those with a transition on the not so immediate horizon should still take care to begin preparing for their exit now, so they are ready to strike when the iron is hot. With that said, just 53% of surveyed owners said they had an exit plan, and a slightly higher 58% knowing what their business is worth. That leaves nearly one out of every two owners unprepared should disaster strike instead.

While retirement is the top reason business owners intend to sell, the " Dismal D's" are unfortunately very common reasons pushing owners, or their family, to market. It only takes a few minutes to call a local business broker now and save months to years of stress later. Many brokers offer free consultations, valuations, and other services to empower business owners with the tools for a future, profitable exit.

"Hire a professional business intermediary that has the expertise to value and sell your business. If your financial books and records are not in good shape, get those cleaned up first. The business intermediary can advise you on what needs to be done for an easier sales process. Understand that selling your business is not a quick or easy process and many pitfalls can be avoided when you get the right advice and have the right team on your side!" said Spangler

How Experts Suggest Preparing for the Year Ahead

Robert N. Leone, Acquisition Experts LLC, FL: “Books and records are important, but if someone has run a business for 10-15-20 years and it’s in good shape, maybe look beyond just the books and records, and what can your skill set do to increase the profits."

Kori Billings CCIM, Bridgewater Commercial Real Estate, FL: “Be patient and stick to your guns on appropriate multipliers for existing cash flow. Try to buy businesses that include the real estate as it will make financing much easier and improve your long-term stability and chances for success."

Philip Wolfstein, ZOOM Business Brokers, CA: “Get pre-qualified for an SBA loan or financing, focus on the business fundamentals and how this fits your skillset and expertise."

John Stefan, JS Business Brokers, NY: "Don’t be greedy or try to sell your business for more than market value. Look online to see what other businesses that are similar to yours are asking price-wise.  Try to find a buyer who is experienced in your type of business and has enough back-up capital to stay in business if sales gets a little tough."

Sam Thompson, Transitions In Business, MN: “Clean up your financials. Work on eliminating personal expenses to the company. Build up your management team and work on removing yourself from the business. Buyers are not buying you, they are buying your business."

Michael Wilmore, Capital Area Business Brokerage LLC, VA: “My advice is to qualify the buyers especially those seeking seller financing."

Jason Ward, TruView Business Advisors, TX:(For Buyers) "Marry the business, date the rate. There is a lot of news coverage on the rising interest rates. A good cash-flowing business can adequately support the debt service with today's rates and still provide a healthy return on investment. It is difficult to find a good business, so when you find one you shouldn't let the high-interest rates scare you away. You can always refinance a loan (after the prepayment period) or float the rate with an adjustable-rate loan."

(For Owners)"If your business is doing well, 2023 is a great time to sell. Buyer demand is still very high with plenty of capital waiting to be deployed, readily available financing, and a growing number of corporate refugees who would like to have more control over their destiny by owning their own business. Supply of quality businesses for sale is expected to be down in 2023 due to business owners holding off selling due to performance issues or the perceived notion that it is not a good time to sell. This makes a perfect opportunity for business owners who are doing well to sell. For those business owners who aren't doing as well, I would advise them to consult a business broker for their opinion of the timing to sell and if there are any actions they can take to prepare for selling their business."

Kevin Kim, Bee Investment Inc, CA:(For Buyers) "Since last year, many buyers have hesitated and missed out on good businesses. These days, regardless of whether it is a profitable business or a business within normal income expectations, it tends to sell out much faster than the normal market waiting period. If you think it's ok, without having to decide too long or wait for a better business, it's better to take immediate action and get the deal right now. Keep in mind that business experience, sufficient funds in the bank accounts over 90 days, and normal credit rating are essential to getting a lease or bank loan. Take immediate action now and preempt the deal. If you think the business you're interested in is a little bit okay, it's better to act now and close the deal without having to decide too long or wait for a better business."

(For Owners) "Remember, until close of escrow, that sellers are always in a weaker position than buyers. Be as honest and cooperative as possible with the buyer and agent. You must never forget that the key to transaction success lies in the hands of the buyer. Avoid too much tug-of-war with agents or buyers by negotiating a small price. Qualified buyers and experienced agents can help you sell your business faster, even at slightly lower than expected prices. A three-year tax return record, sufficient lease term, and meeting SBA loan requirements are crucial guarantees for a successful transaction. In order to quickly sell your valuable business at the desired price, be prepared to submit the required documents in a timely manner upon request, such as a transparent profit and loss statement, 3-year tax return, POS documents, bank statements, merchant statements, and lease agreements. Again, having those documents ready in advance is a key element to completing your business sale on time and getting your next break."

Sally Anne Hughes, Hughes Klaiber, NY: "Prepare for a sale now. Hire a banker and understand the process. Once the economy improves and the Fed slows down rate increases, private equity and other buyers will jump back in quickly."

Moe Bousaid, First Choice Business Brokers, NV: "Prepare your business for sale: Take steps to improve the financial performance and overall attractiveness of your business, such as by updating your financial records, improving operations, and making any necessary repairs or renovations. Determine your asking price: Carefully consider the value of your business and set a realistic asking price that reflects its current condition and market conditions. Find the right buyer: Consider the specific needs and goals of potential buyers, and try to match them with the strengths and attributes of your business. Seek professional advice: Consider working with a business broker to help you navigate the process of selling your business. They can provide valuable guidance and assistance in areas such as pricing, marketing, and negotiation. Be prepared to negotiate: The process of selling a small business often involves negotiation, and it is important to be prepared to discuss and potentially compromise on key terms such as the price, financing, and other conditions of the sale."

Scot Cockroft, Sigma Mergers & Acquisitions, TX: "The high interest rates affect the price but not significantly. Don't overreact to the media. At the end of the day live your life the best way for you and your family."

Carrie Duvall, 1st & Main Partners, FL: (For Owners) "Have your darned books in order. If you can't prove it, I cannot sell it. Be realistic. When a tenured broker says what the market may pay, listen to them. Ask questions, what can you improve in the short term to fetch a better price? Find a buyer you like/can see in your shoes. Be prepared to let go. For goodness sake, talk to a tax attorney and a financial planner BEFORE the sale."

(For Buyers) "Have the cash, credit, and know what you want to do. Be prepared for higher SBA interest rates. Due diligence is a priority with the understanding that you'll never know 'everything'. The buying process is part facts and documents, part your history and skillset and part just jumping in when it feels right in (taking a chance - plan plan plan)."

John Shamoun, Shamoun Business Brokers - RE/MAX One Business:, CA "Engage a business broker as early as possible. Be 100% committed to sell and have a retirement plan in place. Clean up the business of any and all obsolete products, services, machinery and equipment. Make sure there are no liens or owed taxes or rents. And of course good business books and records."

John Inzilla, Murphy Business Sales - Freehold, NJ: "The high interest rates affect the price but now Owners should be open to some level of seller financing. Buyers will be attracted to these businesses over others for the normal reasons (i.e., "skin in the game", but more practically due to rising interest rates in the other lending sources."

Daz Connell, Murphy Business Sales- New Jersey, NJ: "Get your finances in order and be willing to hold at least a 10% seller note. Promote key management so they are in place before you sell which will make the transition shorter for the outgoing owner."

Trystan McNeill, eXp Commercial, NC: "Be realistic. I know your business is your heart and soul, but if things are not on par, you may take a small temporary loss to avoid a long term defeat."

E. Wayne Bullis, Rich-Biz Brokers & Advisors, LLC, VA: "Understand that current values are not the same as valuations a year ago. Be flexible, open-minded, and creative in deal-making."

Dustin Zeher, Horizon Business Brokers, VA: "Seller financing has always been an important factor in a small business sale, but now more so, to help sellers obtain their asking prices by being able to offer lower, more competitive interest rates than traditional lenders."

Stephanie Gaffin, SLS Capital Advisors, IL: "Everyone wants the $3-5MM EBITDA company with recurring revenues, low capex, and high margins so there is strong competition for the few of those that are out there. If you are willing to work a little harder to understand the real potential of a company rather than just the same criteria that seemingly every buyer is seeking, there are some great opportunities out there."

Jackie Schneider, House Of Realty, CA: "Small businesses for sale may be suffering due to economic downturn, that doesn't mean they don't carry incredible potential. Look beyond just getting the check in the mail...Get your hands dirty, get involved."

Robert Flynn, United Brokers Group LLC, MA: "Understand SBA programs, especially personal guarantees (limited and unlimited). Meet with lenders."

Max Friar, Managing Partner, Calder Capital, LLC, MI: "A few things come to mind: 1. Grow your network of lenders. In 2021, everyone wanted to finance the deal. In 2023, the crowd has thinned significantly. 2. Make sure you understand the true investment highlights and differentiators of your target business. How can you thrive in a recession? 3. Understand the culture and team. Have the people been there for a long time? Has there been a lot of turnover?"