An Economic Correction Will be Good for Small Business Sales
By Andy Kocemba
I ate too much over the holidays. Maybe you can relate. In my family, we make lefse, which is a Norwegian flat bread made from potatoes. I eat mine with butter and sugar spread on it. It’s delicious, but as you can imagine, it’s not the pinnacle of health food. When the calendar turns to 2019 and I head back to work, I’m faced with the uncomfortable realization that my belt seems to be smaller than it was last year. Fortunately, that discomfort is the motivation I need to put down the lefse, and make some healthy changes. The same applies to businesses.
If you talk to business owners and those people who might buy businesses, they'll tell you that we have had about eight years of economic growth and comfort. Revenues were consistent and climbing, profits were strong, and jobs were secure. Under those conditions, it’s easy to stick with the status quo and keep chugging along. But now we’re entering 2019 with a little bit of uncertainty. The stock market is volatile and people are wondering what the year will look like, especially amid rumblings of a recession, or as I like to call it, a market correction.
While the knee-jerk reaction is to say it’s not a good situation, I believe these conditions will lead to more activity in the small business market than we have seen in many years. This coming market correction is the belt to our years of eating sweets. It might be a little uncomfortable, but the discomfort will be the catalyst to make a lot of good things happen. Here’s why:
- Motivated Sellers: Most business owners have done well in recent years. They have been able to rebuild their retirement plans while enjoying their work. Generally, thoughts of selling have been put on the back-burner because business was good. But I believe this time of correction, while not being a major economic downturn like in 2009, will be enough of a discomfort to motivate those business owners to put their companies up for sale. Anticipating bumps ahead, they will be thinking “been there, done that”.
- Motivated Buyers: You are all likely aware that in recent years, we have experienced historically low unemployment. When job security is high, buyers of businesses are less motivated. Deals must be sweeter. As a slight uncertainty builds around the job market, buyers will become more motivated to take a leap and move into business for themselves.
- Fair Prices: What this extra motivation doesn’t mean, is that someone will be losing. Both sellers and buyers will be feeling motivated to make deals, and assuming the businesses are healthy, it is reasonable to expect that fair purchase prices will be paid and deals will be win-win for all involved.
Takeaways:
- A market correction will motivate buyers and sellers of small businesses to take action.
- Buyers and sellers of small businesses can still expect fair prices for healthy businesses.