7 October 2016

Election Impact on Small Business Confidence

October 6, 2016  
By  Roger Russell

Elections have consequences. While it’s clear that the next President will have his or her own agenda, and possibly the legislative power to back it up, predicting the future based on possible outcomes is risky. Still, the upcoming election, perhaps more than usual, is already affecting people’s contemplated behavior as they anticipate possible outcomes.

According to the 2016 BizBuySell Confidence Index survey, both prospective buyers and sellers say the election result could change their plans in the market. Although small business sellers remain confident in the current market, data from the survey shows that a Clinton win could lead to more sellers entering the market in 2017.

Both buyers and sellers would be more confident under a Trump presidency, according to Bob House, president of BizBuySell, who conducted the survey. “The question is, do people back up with actions what they say in their statements?” he asked. “It’s clear that both sellers and buyers prefer Trump over Clinton because they feel that he’s more likely to improve the small business environment. I’m not sure that people will back it up, but 57 percent of sellers and 54 percent of buyers believe that Trump is the candidate who would most improve the small business environment. Comparatively, just 27 percent of sellers and 31 percent of buyers feel that Clinton would most improve the small business environment.”

“Aside from the election’s impact, what’s happened is that there’s been a narrowing of the gap between buyers and sellers in their confidence in the business climate,” House observed. “Sellers are slightly less confident and buyers are a little more confident. Digging deeper, last year 59 percent of sellers thought that if they waited a year they would get more for their business. That dropped to 48 percent this year, so sellers are a bit less optimistic about the future. As a result, they are setting a more realistic asking price for their businesses. For the second year in a row, median asking prices have dropped, so sellers are a little more motivated to sell and are setting more realistic asking prices.”

The confidence index is calculated by evaluating survey responses of more than 2,000 people interested in either buying or selling a small business. A separate score is calculated for both current small business owners interested in selling and prospective buyers currently exploring the market. Each group’s score ranges from 0 to 100, with 100 representing a perfect environment for buying or selling a business and a score of 50 representing neutral confidence.

This year’s survey results show that while sellers continue to feel more confident than prospective buyers in today’s market, the gap is closing, according to House. The 2016 Seller Index stands at 59, down slightly from 62 in 2015, while the 2016 Buyer Index grew to 49, up from 47 a year ago.

Overall, the Seller Index dropped three points from last year, but the 59 score remains higher than the 56 reported in both 2014 and 2013, House noted.

Concerns of those with lower confidence include fear of a depressed economy, increasing costs, declining sales and revenue, changing wage regulations and changing healthcare regulations.

“While the Seller Index fell a few points, overall optimism remains,” he said. “We’re seeing rising financials from most of the businesses sold on our marketplace this year so it makes sense that now would be viewed as a good time to sell.”