Which Side of a Dividing Market Is Your Business On?

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BizBuySell’s Q3 report is out, and the number that stood out to me was not a price or a multiple. It was what buyers said is actually standing between them and a purchase.

BizBuySell released its third-quarter report and, as usual, there is a lot of pricing and multiple data in it. But the number that stood out to me was a different one. When buyers were asked what is holding them back from buying a business, the most common answer was not financing, and it was not seller asking prices. Nearly a third of them said the hardest part is finding a quality business to buy. Only fifteen percent pointed to financing and thirteen percent to asking prices.

I think owners should pay attention to that, because it says something about this market that does not match what a lot of them assume. There is no shortage of buyers right now, and there is no shortage of money looking for a home. What is in short supply are well-run, properly prepared businesses that are actually worth buying. And the rest of the Q3 data shows what that scarcity is doing to prices.

The market has split into two, and the distance between the two halves keeps growing. Businesses that sold for more than a million dollars were twenty-two percent of all the transactions in the quarter, which is the highest share BizBuySell has ever recorded, and that group was up eight percent from a year ago. Businesses below a million were down ten percent. More telling than the volume is how differently the two groups were treated. The businesses above a million dollars sold, on average, for 100.8 percent of their asking price, and that is the fourth quarter in a row that group has sold at or above full ask. The businesses below a million sold for 93.6 percent of ask. One group is getting full price in a competitive process. The other is giving up ground at the table.

The brokers quoted in the report describe the same thing I am seeing. Well-run, high-performing companies have become a scarce commodity, and that makes for a seller-friendly market if you own one. The struggling companies, the ones with declining numbers and operational problems, have far fewer options, and the leverage in those deals sits with the buyer. It is the same quarter and the same economy, but the experience of selling is completely different depending on which side of that line your business falls on.

Here is the part I want owners to take away. Which side you land on is mostly within your control. The buyers in this market are disciplined and they are selective. More than half of them describe themselves as corporate professionals, and they bring that analytical mindset to the purchase. Three-quarters are looking specifically for recession-resistant businesses, and only about a third will even consider a turnaround. They are going through pricing, financial health, and how the business runs with real care, and they are rewarding the businesses that hold up under that review with full-price offers while marking down the ones that do not.

The things that put a business on the stronger side of that divide are the same things I have been writing about for the past several weeks. Clean, well-documented financials. Earnings that are real and can be defended rather than numbers that were dressed up right before going to market. A business that does not depend on the owner to function. An asking price that reflects what the financials will actually support and what a buyer can finance. None of that is new advice. What is new is that I no longer have to argue it as my opinion. The Q3 data shows what the market is paying for, and it is paying for exactly those things.

Financing is part of what is drawing the line, especially at the smaller end. Those deals lean heavily on SBA financing, which the brokers named as the most common financing obstacle of the quarter, and the SBA rules that took effect October 1 raised the bar again. Every SBA-financed change of ownership now requires an independent valuation. Acquisitions of three million dollars or more require a quality of earnings report. And the business has to show that its historical earnings cover the debt, because projections no longer count toward that test. All of that works in favor of the owner who has clean, provable numbers, and against the owner who does not, which is the same divide I am describing, just showing up on the financing side of the deal.

There is one more finding in the report I want to point out, because it runs against a lot of what people are saying right now, and it has to do with AI. Adoption jumped to sixty-eight percent of owners, up from fifty-five percent a year ago, and owners who use it are reporting real gains in how they operate. But it is not translating into a higher price at sale. Only fifteen percent of buyers said they would prefer a business that has already put AI in place, and almost a third said they would rather implement it themselves. Half of the owners planning to sell said AI has little or no effect on what a buyer would pay. I am not saying AI does not matter, because it clearly does. I am saying it pays off for a seller the same way everything else pays off, by improving the actual earnings that show up in the financials. If AI helped you widen your margins, the business is worth more because the margins are wider. A buyer is not going to pay you extra simply because you can say the business uses it.

The thread running through the whole report is that buyers have gotten a lot more discerning, and a discerning market treats a prepared seller very well and an unprepared one fairly harshly. The owners who are going to come out ahead are the ones whose businesses can get through tougher diligence without falling apart, meaning clean financials, adjustments that are documented and will hold, a realistic valuation, and operations that keep running when the owner steps away. That has been the advice for years. What the third quarter gives us is the proof that the market is now paying a widening premium for it and charging everyone else for not having it.

So if you own a business and you think you will sell it at some point, I would not spend much energy on whether the market is good or bad right now. The better question is which half of this market your business would fall into if you took it out today, and what it would take to move it to the better half first. That is worth figuring out long before you actually need to know the answer.

A note for the CPAs who refer clients to me

The divide this report lays out runs right through your client base, and you can usually see which side a given client is on sooner than anyone else can. The businesses pulling full-price offers are the ones with clean, well-documented financials and earnings that hold up, and that is a direct reflection of the work you do with them year in and year out. By the time an owner is ready to sell, most of what determines their side of this market has already happened in how the books were kept. When a client of yours starts thinking about a sale, bringing me in early lets us look together at where they actually stand against what the market is rewarding now, while there is still time to close the gap instead of finding it during a buyer’s diligence.