August 2, 2018
Small Business Economy Stabilizes in Mid-Year 2018
M&A activity indicates return to pre-recession norms
EDINA, MINN., – After a robust start to 2018, economic indicators continue to demonstrate that the small business economy has finally returned to normal following the recession and subsequent recovery. Small business owners are reporting high levels of optimism as well as increased revenue, strong cash flow and plans to invest in their businesses. Calhoun Companies, an Edina-based business brokerage firm specializing in connecting buyers and sellers of small businesses, has seen confirmation of this trend in Minnesota through the local mergers and acquisitions (M&A) market. The company helped sell 36 businesses through the first half of 2018, a 30 percent increase from the number of businesses sold this time last year.
“Business owners are feeling comfortable in a way they haven’t in many years,” says Andy Kocemba, president and CEO of Calhoun Companies. “They’ve weathered the storm and are finally being rewarded with increased valuations, cash flow and growth opportunities.”
As of mid-year 2018, small businesses are seeing one of the strongest economic outlooks in recent memory. The Small Business Optimism Index, created by the National Federation of Independent Businesses (NFIB), posted its sixth highest rating in survey history in June, reaching 107.2. Since December 2016, the Index has averaged an unprecedented 105.4, well above the 45-year average of 98. This time last year, the rating was at 103.6, and in 2016, it only reached 94.6.
Likewise, the Small Business Index, developed by the U.S. Chamber of Commerce and MetLife, rose for the fifth consecutive quarter, reaching 68.7 nationally, and 70.4 in the Midwest, the highest of any region surveyed. Compared to the national average, business owners in the Midwest were most likely to rate the health of the national economy as good (51 percent) and view their company’s cash flow as good (87 percent). Nationally, the economic outlook dropped slightly from Q1, but remains the second highest level since the Index began. Overall, a firm hiring environment, stronger backdrop for investing and solid economic gains has left nearly two out of every three small business owners feeling optimistic. Cash flow considerations also remain strong, with nearly 80 percent of business owners feeling comfortable.
Interestingly, the healthy economy seems to have leveled off the M&A market in Minnesota to pre-recession levels as business owners, particularly Baby Boomers, begin to feel confident in continued economic stability. While more businesses are hitting the market than in previous years – 36 closings in the first half of 2018 compared to 28 in 2017 – the price per business sold fell slightly from this time last year, though it remains well within pre-recession levels.
“We’re starting to see the M&A market stabilize and return to its usual ebb and flow as business owners gain confidence in the economy,” says Kocemba. “There’s no longer a rush to build up a business and then sell it. Owners now feel safe with holding on to a business while times are good.”
The Small Business Index corroborates this trend, with more than 80 percent of small business owners reporting they have developed a business plan to adapt to a changing economy and 86 percent indicating that they have a clear idea of how to get their business back on track if it begins to struggle.
“In my experience, a higher number of deals is the main indicator that the economy is doing well and buyers and sellers are feeling confident,” says Kocemba. “I’m confident that we will see a stable market through the end of 2018, particularly as small businesses continue to see improving financial performance.”
About Calhoun Companies
Calhoun Companies is a leading independent business brokerage serving the Twin Cities area and the Upper Midwest since 1908. Specializing in business valuation, buying and selling businesses, and commercial real estate, the team at Calhoun confidently connects buyers and sellers through a successful transaction. Current listings and additional information included on the Calhoun Companies website.