As the economy slowly recovers, buyers’ confidence level increases and with that comes a greater demand for businesses available for sale. Buyers, who were waiting for the bottom of the recession to hit prior to making a decision on buying, now find themselves competing for quality businesses in this market. However, as can be expected, businesses which survived the recession now have less competition and with less competition come increase market share and profitability. In fact, business valuation has slowly increased over the last couple of years.
Simply stated, due to increased profitability and value, business owners are not as willing to sell their business, and if they do, they want more value for it—creating in fact, lower inventory of quality businesses for sale. This brings me to my point regarding the Law of Supply and Demand—as supply of businesses for sale decreases (or buyers’ demand increases) so do higher prices.
Lower inventory of businesses for sale (supply) with more buyers in the market (demand), mean that buyers will more than likely pay more for a business today than a year ago. So, this can be great news for those who are thinking of selling their business.
Additionally, since the economy will eventually fully recover, values will continue to increase. This means that buyers should buy now, as well. Waiting for tomorrow may cost them thousands of dollars more. Note: This may also be good news for Business Brokers—greater value normally means more commission. However, greater value is offset by lower inventory of businesses for sale, which normally means less commission. So, break even?
So, what am I saying? If you ever thought of selling or buying a business, and given the Law of Supply and Demand, this is the right time to do it!