January 23, 2018

Market Correction May be a Boon for Small Businesses

Economic indicators waver but remain high into 2019

EDINA, MINN., – As 2019 begins, economic indicators have dipped slightly but continue to show high levels of optimism among small businesses, even amid uncertainty around the stock market and rumblings of a potential recession. While there are concerns this may be a sign of an economic downturn, Calhoun Companies, a business brokerage firm specializing in connecting buyers and sellers of small businesses, believes the conditions are actually a market correction that will lead to more activity in the small business M&A market than in recent years.

2018 was a strong year for small businesses in terms of job creation, and optimism remains high heading into the new year. The National Federation of Independent Businesses (NFIB)’s most recent Small Business Optimism Index shows high levels of optimism, despite a modest decline at the end of the year which brought the reading to 104.4. This number is just slightly down from the high of 107.2 in June and remains well above the 45-year average of 98.

The MetLife and U.S. Chamber of Commerce Small Business Index likewise remained high in its most recent reading, though it dipped slightly to 69.3 from a record high of 69.9 in Q3 of this year, indicating a slight pause in the upward trend observed throughout 2018. Reflecting continued optimism and positivity about the economy, more than a quarter of businesses surveyed said they plan to invest in their companies and hire staff in 2019. Small business owners also reported high confidence in the U.S. economy, with 58 percent rating it as very good or somewhat good, and in their businesses, with 64 percent feeling either somewhat good or very good.

Ironically, the health of the small business economy led to a levelling off of the M&A market as it returned to its usual ebb and flow. In 2018, more businesses hit the market place than in previous years, though the price per business sold was down, indicating that smaller businesses were able to come to the market place. However, rumblings of a recession will likely shake up the market in 2019.

“Businesses have done well in recent years,” says Andy Kocemba. “Generally, thoughts of selling have been on the back-burner. This market correction may bring enough discomfort to motive business owners, particularly Baby Boomers, to put their companies up for sale leading to an influx of healthy businesses to the market place.”

These businesses will find a pool of eager buyers when they do hit the market. When job security is high, buyers of businesses are less motivated. As a slight uncertainty builds around the job market, buyers will become more motivated to take a leap and move into business for themselves. 

“The good news is that we’re expecting to see a lot of win-win situations in the M&A market in 2019,” says Kocemba. “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.”

About Calhoun Companies

Calhoun Companies is a leading independent business brokerage serving the Twin Cities area and the Upper Midwest since 1908. Specializing in business valuation, buying and selling businesses, and commercial real estate, the team at Calhoun confidently connects buyers and sellers through a successful transaction. Current listings and additional information included on the Calhoun Companies website.