Industry News | July 20, 2012

Small Business Transactions Dip 1.6% in Q2

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BizBuySell.com, the Internet business-for-sale marketplace, reported today that business-for-sale transactions were down 1.6 percent in the second quarter of 2012 as compared to the same period last year. Year-to-date business sales for 2012, however, remain above 2011 numbers.

The results were included in BizBuySell’s Second Quarter 2012 Insight Report, which aggregates business-for-sale transactions reported by participating business brokers nationwide.

The results represent a small bump in the road to what has been a steadily improving trend line in the business-for-sale marketplace. In total, 1,603 closed transactions were recorded, a 1.6 percent drop from the same quarter last year. Year-to-date totals, however, remain on the rise, as the 3,332 businesses sold in the first half of 2012 exceed the number sold in the first two quarters of 2011 by 1.2 percent.

“While we don’t like to see a drop in reported small business transactions, our analysis suggests that this quarter's decline is a small hiccup in an otherwise consistent path to recovery,” says Mike Handelsman, group general manager of BizBuySell.com and BizQuest.com. “Based on what we have heard from brokers, as well as our own experience, we are expecting a strong second half for 2012 that will continue the slow but steady improvement we've seen since small business sales activity began to strengthen in mid-2009.”

Small Businesses Health Still Improving

Despite declining transaction volumes in Second Quarter 2012, other Insight Report statistics suggest that small businesses are financially healthier now than they have been in the recent past. Business revenues and cash flows, for example, both improved year over year.

Businesses sold on BizBuySell.com in Q2 2012 had median revenues of $360,000, up from $340,000 in Q2 2011. The median annual cash flow for sold business in Q2 2012 was $86,508, an improvement from $85,000 in Q2 2011.

Another trend throughout the recovery has been sellers setting more realistic asking prices for their businesses. That continued in the second quarter of 2012, with a median asking price of $236,750, down slightly from Q2 2011’s $239,000.

“The improving health of small businesses combined with more realistic asking prices set us up for a strong second half in 2012,” Handelsman says. "With acquisition financing gradually becoming more accessible, we expect buyers to increasingly invest in the market's inventory of fundamentally sound and reasonably priced businesses throughout the second half of the year.”

Second Quarter Results Outpaced by Strong Results in First Quarter

According to BizBuySell.com, a more active than usual first quarter in 2012 could have contributed to the comparative downturn in the second quarter. The 1,729 businesses that were reported sold in the first quarter of 2012 marked the largest number of transactions since the fourth quarter of 2008, making the first quarter the most active in over three years. As a result, many brokers dedicated more time in the second quarter to acquiring new listings.

“Based on what we’ve heard from many brokers across the nation, the business-for-sale market was strong enough in late 2011 and early 2012 to sell inventory that had been sitting idle for months, even years, prior,” Handelsman says. “The fact that year-to-date totals are still above 2011 totals supports this case and further inspires confidence that the second half of 2012 will continue the upward trend we’ve seen since we hit bottom in 2009.

Uncertainty Over Capital Gains Rate May Push Sales

Uncertainty regarding the future of Bush-era capital gains tax cuts may provide an additional impetus for a stronger second half of 2012. The 2010 Tax Relief Act extended the reduced maximum tax rate of 15 percent on adjusted net capital gains through 2012.

That cut expires at the end of the year, however, and barring another extension or other governmental intervention, the tax rate will return to 20 percent in 2013, sharply cutting into proceeds from the sale of businesses.

“Business owners who are considering selling should realize the major impact this tax increase will have on their total takeaway and should start planning accordingly,” Handelsman says. “Even if an owner thinks he or she can get a better closing price in 2013, the difference could be negated through a lower after-tax take if the tax cut isn’t extended. Brokers and other advisors know this and will likely encourage owners to expedite the sales process in the next six months.”

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