(This post originally appeared on The Washington Times)
Given the economic environment, it should be a great time for a business owner to sell the company, right?
Interest rates are low and financing is within the reach of many buyers. A growing number of baby boomers are reaching retirement age and looking for an exit. The overall tax environment is — for now — still very favorable. The economy is strong, demand is up and many small businesses have seen increased sales and profits over the past few years.
So not surprisingly, the number of small business owners who sold their businesses in 2019 was still at a historical high. That’s according to the most recent quarterly study from BizBuySell, an online marketplace for business buyers and sellers. But although historically high, the number of business owners selling their companies has decreased 5 percent from last year. Why the downward trend?
It’s uncertainty, according to the report, specifically on two fronts: Trade and wages.
“The steel tariffs with China have increased my parts cost an average of 35 percent,” Richard Williams who owns a transmission and auto care shop in Massachusetts told the study’s authors. “This is reflective in my bottom line and it’s not like I can raise prices by 35 percent. It would cause me to go out of business.”
With the president’s recent signing of a “Phase 1” trade deal with China, some of those tariff concerns should be eased in 2020. But there’s still much to be resolved. Adding to these trade challenges are the rising costs of labor that’s impacting business owners nationwide.
Twenty-four states have increased their minimum wages this year, with many localities requiring local businesses to pay as much as $15 per hour. “It’s killing us out here,” Al Meyer of Toppings, a pizza restaurant in Maine, told BizBuySell. “Minimum wage is a foolish move by bureaucrats who don’t even own a small business.”
Many other business owners agree with this sentiment. While most I know are paying well above the minimum wage, the required increase is not only adding costs for entry-level workers, but also putting upward pressure on all wages. It’s not just minimum wage increases that are creating pain. Local regulations surrounding mandated time off for family and sick leave, predictive scheduling as well as required discrimination training, are piling on costs for many small business owners that are already operating on thin margins. Even more concerning is that the leading Democratic presidential candidates all support similar measures at the federal level.
These factors, as well as the uncertainties of this year’s upcoming elections and rumblings of a potential recession, are giving pause to many buyers of small businesses. For those that did manage to sell their companies during 2019 they did so at a discount. According to the BizBuySell report “the deals are more balanced than they appear,” and while prices are still higher than they were a few years ago, some “sellers are sacrificing value to avoid an uncertain future.”
Will the downward trend in business owners exiting continue into 2020? Bob House, president of BizBuySell doesn’t think so. “While there is definitely some uncertainty in the market, it’s good to see that 2019 transactions remained strong overall,” he says. “Buyers and sellers are obviously still seeing value in today’s business-for-sale market and that momentum will likely continue well into 2020, even if levels plateau a bit due to economic and political concerns.”
Let’s hope he’s right. I know his business is depending on an active market of buyers and sellers. But so are the livelihoods of millions of small business owners who are not only hoping to pass their assets down to a future generation (and provide continuing jobs for their employees), but are also looking to have enough money to comfortably retire.