Small Business Confidence Grows with Hopes Set on Election Outcome, Rate Cuts Less Influential, as Q3 '24 Sold Business Transactions Increase 5%

With the US Presidential election less than a month away and the Federal Reserve recently cutting interest rates, new data indicates the small business community has increased confidence in the business-for-sale market.

According to BizBuySell’s Buyer-Seller Confidence Index, which measures the sentiment of nearly 3,000 business owners and buyers on a scale 0-100, seller confidence rose 4 points to 50 from 46 in 2023, while buyer confidence rose two points to 54 from 52, respectively. This is the first year in which confidence rose among both groups simultaneously.

Most business owners (54%) feel confident they would receive an acceptable sale price today. This optimism extends beyond 2024, with 43% expecting an even greater price if they were to sell their business next year, according to BizBuySell, which tracks and analyzes U.S. business-for-sale transactions and sentiment from business owners, buyers, and brokers. This compared to 39% who expect their value to remain the same in 2025, and just 18% anticipating a decline.

Small business optimism is closely tied to the outcome of the US presidential election. Most owners (67%) say they believe Donald Trump will have the best impact on the small business sector, compared with 28% who say it would be Kamala Harris.

When asked about his business outlook, Rick Murray, owner of Blue Heron, a service company in Oregon, said, “It depends on who wins the presidential election. My business made significantly more money under the last Trump administration, and things have gotten progressively worse under Biden.”

Trump’s favorability among business owners can be further explained by their concerns about business policies. Among the policies that owners feel the most strongly are tax reform (71%), followed by small business loans and grants (61%), healthcare costs (50%), labor laws and minimum wage (47%), and regulatory changes (44%).

From a buyer perspective, Daniel Robertson of Wyoming adds, “I need to get going on starting a business, but I also would like confirmation that Trump will be able to win and peel back taxes and regulations.”

Vice President Harris’s economic plan for small businesses has some optimistic about her potential leadership. “Just the mention of a 50K tax break for new owners means she is really thinking about my sector. Very refreshing,” said Heather Johnston, owner of Good Wine (NYC LLC) in New York.

Dealmaking Activity Grows, Buyers Pay Higher Prices for Retail and Services Businesses

Small business acquisitions grew 5% in the third quarter, the fifth consecutive quarter with year-over-year gains, yet slipped 2% from the previous quarter as market entrants await the election outcome and expected additional rate cuts to improve affordability. Still, the market is on an upward trend, according to BizBuySell’s business-for-sale transaction data.

A total of 2,399 businesses were reported as sold in Q3, representing an enterprise value of $2 billion, which is 20% higher than the same time last year. Many of these transactions were service businesses, at 39%, followed by restaurants at 21%, retail at 20%, and manufacturing businesses at 6%.

Businesses that sold in Q3 reported stronger financials than last year, with median revenue up 8% annually and median cash flow up 3.5% annually. However, median sale prices remained flat year-over-year and dipped 13% from a record high of $375,000 last quarter to $325,000 in Q3.

Katrina Loftin, managing partner and co-founder at M&A Business Advisors explains how sellers and lenders are motivating buyers to move forward with deals, “We have definitely seen a shift from full price to a reduced price - typically around 10% less than asking. We are also seeing more buyers asking for seller financing at a rate lower than the SBA rate. Many banks have been offering incentives, so that has kept things moving.”

Robin Gagnon, co-founder & CEO of We Sell Restaurants, adds, “We have observed more sellers entering the market in Q3, and some are adjusting their pricing to reflect the realities of financing costs. Rather than holding off, many are motivated to close deals before any potential market shifts. While interest rates are a factor, they’re not halting transactions. Buyers and sellers are adjusting to the new normal, and deals continue to close when the financials make sense.”

Service Sector Sale Prices Up 16%, Retail Prices Up 11% as Buyers Focus on Revenue

The number of service businesses changing hands was consistent with last year, yet the median sale price jumped 16%. The sector also showed strong financials, with median revenue up 18% year-over-year and median cash flow up 21%, respectively. While the service sector is diverse, delivery routes made up the largest number of transactions, followed by automotive repair shops.

The retail sector was less active, with closed transactions down 4% from last year. Yet, retail businesses sold at higher prices, with buyers willing to pay more for those with strong sales volume. The median sale price jumped 11%, with median revenue up 18%. However, sold retail businesses showed weaker margins, with median cash flow down 2% year-over-year.

Restaurant and Manufacturing Business Acquisitions Grow, Sale Prices Unchanged

Restaurant dealmaking was active in the third quarter, with closed transactions up 15% year-over-year, while the median sale price remained flat. Restaurants that were purchased in Q3 showed median revenue declined 7% from last year and median cash flow remained unchanged. While the industry remains a popular mainstay among entrepreneurs despite being particularly hard hit by higher overhead costs, including food and labor, these challenges are reflected in the sector’s financial performance.

Demand for manufacturing businesses was exceptionally strong in Q3, with closed transactions up 20% year-over-year. Sale prices remained unchanged, with also modest changes in financial performance. Median revenue remained flat year-over-year while median cash flow grew 2%, respectively. Popular among these were manufacturers of food products, printing, concrete, and signage.

Seller Financing on the Rise, Rate Cuts Not Changing Buyers' and Sellers' Timelines

Data from BizBuySell’s survey shows that sellers are becoming increasingly open to offering financing to close deals. Today 28% of sellers say they would consider it, up from 24% in 2023 and 21% in 2022. Opposition has also diminished, as 40% say they are completely against offering it versus 44% in 2023 and 51% in 2022.

Jon Pastoor, M&A advisor at Calder Capital adds, “With higher interest rates, we did see an effect of having more seller financing than in years past in order to get to a desired valuation. Seller sentiment seems to be picking up, and now with a drop in rates, I expect that to continue.”

Rather than wait on the sidelines, both buyers and sellers are motivated to get deals across the finish line. With higher interest rates putting pressure on both acquisition costs and business values, establishing a win-win deal structure becomes critical.

“It’s really more about debt service than purchase price. So, it boils down to rates, terms, or willingness of the seller to finance themselves. We have done some great creative deal structures, which makes us somewhat immune to other market forces,” said John English of Texas.

Furthermore, recent rate cuts have had little influence on deciding when to move forward. In fact, 70% of owners say rate cuts have had no impact on their timeline compared with 64% of buyers.

79% of Business Owners Struggle with Higher Costs as Fed Says Inflation is Easing

According to the Bureau of Labor Statistics, the rate of inflation has slowed. The Consumer Price Index (CPI) for September was 2.4%, down from 3.7% a year ago. However, nearly half of small business owners (48%) feel conditions are not any better. In fact, 61% say inflation is not easing and 79% say their costs are higher than a year ago.

Davinder Singh, owner of Bonita Market in California, explains how difficult it is to manage costs and still turn profit, “If I were to evaluate my business costs now compared to last year, I’d say there’s been a noticeable increase across several key areas. While I’m hopeful that some of these costs will stabilize, the current landscape has made it challenging to maintain profitability without adjusting my pricing or cutting back in other areas. Overall, managing these rising costs is a critical focus for the business, and I’ll need to stay proactive to navigate these changes effectively.”

Furthermore, the Department of Labor reported jobless claims are at a 14-month high, indicating the labor market has softened in favor of employers. Yet, 55% of small business owners say the labor market is not improving, compared to 22% who see improvement and 23% who are unsure.

Yanni Bulaba Diessa, owner of FamilySoft in Ohio, explains how labor costs are impacting his business, “We continue to face significant challenges, including increased competition for skilled talent, higher salary expectations from candidates, difficulty retaining existing staff due to better external offers, and longer hiring timelines. Although we've adapted by offering competitive packages and benefits, attracting and retaining top talent remains difficult, resulting in increased labor costs and necessitating strategic investments in employee development and retention programs.”

Individual market dynamics also play a role. “Now that McDonald's workers make $20 an hour in California, nobody will work for less than that,” adds Anthony Crockett, owner of Tannenbaum Vending Inc.

Even after the Federal Reserve announced its decision to cut interest rates, 69% of business owners say have yet to use rate cuts as motivation to make investments in their business. Regardless of recent economic data indicating costs should be more manageable, and labor should be easier to come by, most owners believe conditions have not changed since last year.

Market Outlook

As the business-for-sale market heads into the final stretch of 2024, it is expected to continue growing at a steady, yet measured pace. Despite current economic conditions, nearly 20% of owners surveyed say they are either actively selling or intend to sell their business before the end of 2025, while another 25% intend to sell but with no firm date.

Most owners are exiting their businesses for personal reasons, with 43% citing retirement, as aging Baby Boomers continue to fuel the market. Moreover, 27% of owners are exiting due to burnout, 18% to capitalize on high business value, and 10% because the business is underperforming. Still, the market remains competitive as buyers compete for a limited supply of strong performing businesses with healthy financials.

“As the cost of financing has increased, buyers have become more cautious in their approach. Buyers are prioritizing businesses with strong cash flow and good, provable financials to mitigate these risks,” said Lisa Riley, CEO of Delta Business Advisors.

In fact, 86% of buyers surveyed said they plan to act within the next two years. When asked why they think now is a good time to buy a business, 37% believe there are a variety of good businesses to choose from with 30% expecting good value at a favorable price, and 28% looking to take advantage of emerging market opportunities.

Max Friar, Managing Partner of Calder Capital explains, “We have approximately 30 clients under LOI, with the expectation that most of those will close in Q4 2024. We are anticipating another record year in terms of revenue growth, and to be breakeven or slightly ahead with 2023 in terms of the number of closed deals. We believe 2025 will be a solid year with more balance between buyers and sellers.”

While not necessarily a forcing function, expected declines in interest rates over the course of the next several months should only fuel activity. For those on the sideline, experts recommend getting prepared now, so you are ready to answer when the right opportunity knocks.

Jon Pastoor, M&A Advisor at Calder Capital shares his outlook for the business-for-sale market.