Small business ownership has always been a haven for individuals seeking independence in times of uncertainty. Last year, COVID -19 presented a wakeup call for American workers who faced job loss or stay-at-home downtime to assess their future. As lockdowns began last March, US unemployment rose to over 20%. Restaurants were hardest hit; over 40% have not reopened so far in 2021. PPP and EDIL loans were critical factors in helping millions of small business owners stay the course, while extended and enhanced unemployment benefits helped millions more employees and independent contractors.
One year later things have dramatically improved thanks to vaccines developed by Pfizer, Moderna and Johnson & Johnson in record time. Today, over 67% of Americans 18 years and older have received at least one shot. Businesses are reopening, baseball and golf are back, and small businesses are coming back with a vengeance. Yet getting employees back to work, supply chain interruptions, and inflation (temporary or not) are factors business owners are dealing with.
During the first half of 2021, buyers outnumbered sellers as the economy began its rebound and sellers began to recover business momentum from the pandemic. These owners may continue to hold out to re-establish pre-pandemic value before deciding to sell. This is especially true for Baby Boomers, who hold a large quantity of pent-up supply. Of course, re-establishing business value requires time and a sustained recovery. As the states begin to ease restrictions and customer confidence returns, pent up consumer demand and fewer businesses still open will spur recovery.
During Q1 2021, buyers were willing to pay more for quality businesses. According to BizBuySell, businesses that sold in Q1 2021 continued a year-long trend of improved performance. The median revenue and cash flow were up 15% (to $688,020) and 8% (to $147,752) respectively year-over-year, representing the highest financials since BizBuySell began tracking transactions in 2007.
With strong performing businesses in high demand and short supply, sellers will continue to enjoy the advantage, while buyers, further motivated by low interest rates and SBA loan forgiveness programs, are willing to pay premium prices. During the second half of 2021 however, the market may find equilibrium as the economy continues to recover and more owners move forward with their exit plans. Buyers will continue to find historically low interest rates and expected capital gains increases will act as further motivation to become an owner versus an employee by owning a small business. New first-time buyers, either unemployed due to the pandemic or unhappy with their job and wanting to take control of their future will explore buying a small business. Baby boomer owners that have hung on this long may not want to continue to rebuild however after surviving the economic downturn in 2008-2009, and as business continues to recover, reconsider an exit later in the year.
Unique business sectors, worker availability and supply chain recovery will also play a factor. Some areas of the country will recover faster than others. For these reasons, consulting a business broker is normally the best course of action for anyone thinking about buying or selling a business. Even if not ready to act, a broker can guide entrepreneurs on market conditions and create a plan to accomplish their goals.