Market Update – August 2020

Hank Bockus

Hank Bockus

Oklahoma City Business Broker and Founder of Bockus Consulting

Every business owner at one point in their career thinks, dreams, or even fantasies about selling their business and traveling, spending time with grandchildren, starting something new, or supporting a cherished mission. 

That is not true, the International Business Brokers Association in 2019 took a survey of over 3,000 business owners and 6% wanted to “die in their business”. 

If there is something we can learn from this time, COVID-19 has served as a wake-up call.  Normally we as business owners are married to our business and this forced time away has helped us to realize it’s okay to be away. 

Many owners have enjoyed the time spending with family and loved ones.  Slowly, owners are understanding that they are not retiring from something, they’re retiring to something.

In this report, I will touch on the state of business transactions across Oklahoma and the United States as we look back on the months; April, May, June, and July.

According to BizBuySell data – small business transactions dropped 38% in the 2nd quarter.  This represents the largest year-over-year decline since the Great Recession when transactions dropped 50%.  Owners focused on maintaining operations while buyers waited for the dust to settle.  This time will be referred to as the “giant pause” with fear of the unknown paralyzing all parties.

Fast forward to July.  After 20% of business owners closed their doors and 32% suspended operations, now 71% of survey business owners have resumed operations.  Business sales have remained steady during a shelter in place and transactions are increasing.

HIGH DEMAND FOR BOOMING BUSINESSES

As of  the end of July, buyer inquiries have surpassed and now eclipsed pre-pandemic levels.  Large groups are seeking a profitable, pandemic resilient business.  In many cases, businesses are not just surviving the pandemic, they are absolutely thriving.  COVID-19 has realigned American needs and certain sectors are at all-time highs.  If your business is one of the lucky ones, moving forward with selling can fetch a premium now for your business because of the reduced risk.

RARE COMMERCIAL REAL ESTATE OPPORTUNITY

A deeper look into depressed business acquisitions reveal an attractive opportunity in today’s market with an unprecedented number of business expect to shut down to acquire real estate.  This is especially attractive for owners in a good position to expand or upgrade their business.  According to LoopNet.com – 58% of surveyed owners are currently looking to buy another location.

MARKET OUTLOOK

According to BizBuySell, 16% of business owners plan to exit their business earlier as a result of the pandemic, while 20% will be forced to work longer, and 61% indicate they are not changing their timeline.  We are barely scratching the surface of the baby boomer supply and the uncertainty will propel certain owners to enter the selling market.

Regardless of motive, sellers will be met with a wealth of demand once they enter the market with their quality business, priced right.  In the short term, the CARES Act is motivating buyers to act quickly to qualify for 6-months of paid principal and interest payments for 7a loans closed before September 27, 2020, with no obligation for repayment.

Much like the rest of the economy, the business transaction market will depend on many factors.  The unknown of future shutdowns, stimulus, virus control, and vaccines will motivate the markets.  Listed on BizBuySell.com as of July 2020, there are 168 businesses for sale in the OKC market.  Of those businesses listed, statistically only 1 in 9 will sell.  In 2019 at Bockus Consulting 87% of our business listings sold for 95% of asking price.  What’s the catch you ask, this is due to our “secret sauce” and only taking on a limited number of clients.  

Despite the early decline in business transactions, financial health is improving.  As has been well-publicized, the restaurant industry has taken the bulk of the impact from the pandemic.  High performing retail businesses with a strong online presence coupled with the service sector have been the bright spots in the market.  As many service businesses respond to consumer necessity and not always desire, demand is likely to remain stable for service businesses regardless of economic conditions.  You can see from the chart below referencing the 1,481 transactions.

In today’s environment – every day is new and different.  We have to think on our feet and be disciplined in our execution.  Regardless of the times, the one thing that businesses are all looking for is cash flow.

For more information such as a 12 Things to Consider Before Selling or our Exit Checklist – email me at hank@bockusconsulting.com and I will send you the free PDF copy.

I wish you all the best of luck during the remained of 2020.

Keep selling, get sold!