The small business market has been experiencing a boom market, but now all signs point to a cooling period for the industry.
According to online market BizBuySell.com, small business sales dropped 6.5 percent in the first quarter after a six percent drop during the fourth quarter. The industry saw just over 2,500 first quarter transactions, a drop of nearly 200 from the year before.
International Business Broker Association Chairman Jeff Snell said while sales are still strong, there are several factors in play that are leading to the drop in people’s desire to sell and buy companies. One such factor is low unemployment, meaning people are happier with their jobs and don’t want to become an owner themselves. He also said with a rise in profits, small businesses have no desire to sell their companies.
The boom in small business sales started in 2013 when a stronger economy boosted company prices, and baby boomer owners chose to retire, selling their companies. When companies became healthier, it increases the number of buyers looking to purchase companies. And, with the drop in the unemployment rate, companies have had a more difficult time finding workers to hire. This led to the acquirement of companies to expand.
Transworld Business Advisors of Denver President Jessica Fialkovich said the slowdown in sales is likely to continue. She said signs point to a more challenging market with rising interest rates and the inability to attain financing as easily.
Since 2015, the Federal Reserve raised interest rates nine times; four of them in 2018 alone. On March 21, the agency said it did not anticipate any more increases for the year because of the slowdown in the economy. If borrowing costs stay stable, the 2018 rate increases will make buying more expensive. A weak economy causes some hesitation among would-be buyers.