Let’s talk about small business owners and company values.
Despite higher interest rates and inflation, the small business market in the US saw steady growth in Q2 2023, with business acquisitions up 8% Quarter On Quarter. However, higher financing costs have pressured business values, with median sale prices down 14% to $300,000 from the previous quarter and median asking prices down 8%. The report also highlights interesting trends across different sectors and regions, with restaurants making a comeback and retail businesses declining. Retail businesses have shown declining numbers in Q2, with transactions down 12.3%, sale prices down 22%, revenue down 24%, and cash flow down 9.4% compared to the previous year. This is from BizBuySell’s Insight Report, which also shows that seller financing is becoming more popular among buyers and lenders, with 70% of buyers intending to ask for it. In comparison, only 22% of sellers plan to offer it, indicating room for negotiation and education on its benefits. The increasing number of individuals embracing entrepreneurship is also noted.
In 2023, the top small business industries include retail at 18%, food and restaurant at 12%, health, beauty, and fitness services at 10%, and construction and contracting at 8%. These industries tend to be more profitable for small business owners. Some industries offer lower earnings for small business owners than the average. These industries include educational services at -70%, administrative, support, waste management, remediation services at -51%, and arts, entertainment, and recreation at -44%.
How about owner pay? Per Glassdoor data, the average salary of a business owner in the US is around $149k per year, and per payscale.com, small business owners earn an average of $69,441 annually—quite a range.
Why do we care?
I’ve always loved the small business sector’s chaos, and a periodic check of those disparate trajectories is valuable. Retail is a rough business – profitable yet facing challenges. One of my recommendations continues to be doing deeper in a particular industry. That’s because the value a technology company delivers should be linked to the top-line revenue of their customers, and the most effective way to do that involves a deep understanding of a customer’s line of business and, thus, their industry. With some scale, you can consider practice areas in multiple industries, like how a law practice has different specialties. This data is useful for both expansion and for those considering specializing. Finally, it’s helpful to know for planning purposes which industries you’re in now that may be shifting.