The median Sale and Asking prices are dropping. The gap is staying pretty consistent.
More significant, small business asking prices in Q3 dropped 13% year-over-year and sale prices dropped 14%, respectively, correlating with weaker financials. Median revenue of sold businesses in Q3 declined 11% from Q2 and 7% from the previous year, while median cash flow in Q3 declined 3% from Q2 and 4% from the previous year, The average cash flow multiple declined 3.5% year-over-year to 2.5 from 2.9.
These declining numbers suggest that sellers are reducing prices to accommodate buyers who are facing rising interest rates and higher acquisition costs. This is compounded by rising costs impacting seller’s discretionary earnings.
“Transaction costs are increasing due to higher interest rates and the fees associated to obtaining a small business loan. Buyers are calculating that increased cost into their decision making and offer as they expect a certain ROI for their capital, time, and risk,” said Dustin Zeher, owner of Horizon Business Brokers in Virginia. “Higher costs and lower returns will negatively impact the cash flow multiple and value of the business as buyers try to maintain a modest return for their investment or their time and capital, and risk of capital.”BizBuySell Insight Report 10-19-2022