Small Business Trends for Year End 2006

I hope you’re enjoying your holidays and getting some needed time off (judging from the volume of voicemail recently, it looks like many of you are working through). It’s the ending of a great year for BizBen and a lot of changes in the California small business market.

Small Business Trends for 2006
Here are the main trends for small businesses this year. After years of growth, the California real estate market has softened. Interest rates have gone up. For those and other reasons, there have been more businesses for sale in California. Let me explain:

• Higher interest rates mean people have less equity in their homes. That means potential business buyers have less capital available to purchase a small business.
• Variable interest rates affect SBA loans. I've seen less SBA loans financed this year as a result of rising interest rates. Higher interest rates mean a higher monthly payment for small businesses, pricing some out of the market.
• Low unemployment rates in California. This translates into fewer people buying a business as a way to get a job.
• More mergers but they don’t drive more small business purchases. Even though there were a lot of mergers, more small businesses weren’t purchased. This is most likely because the combination of higher interest rates along with low unemployment.
• Sophisticated business buyers buying small businesses. I’ve seen more business buyers coming from corporate America this year. This type of buyer is often more business savvy but also more cautious than the average buyer.
• Baby Boomers who own businesses are retiring meaning there were more businesses for sale. This trend will probably continue for the next several years.
• More real estate agents became business brokers. As I’ll talk about in my next post, selling real estate is very different from selling a small business. Most real estate agents fail because they lack adequate training. I’ve seen more lawsuits this year as a result.
  

This is what I've seen in 2006. Despite higher interest rates, it's still a good time to buy a small business in California. The types of businesses that remain popular are fast food restaurants, especially healthy fast food and auto lube businesses.

As always, we'll be watching what's ahead for small businesses and keeping you informed throughout the new year.