A few key findings from The National Small Business Association's (NSBA###-###-#### Economic Report. Here goes...
***TLDR: SMB owners say rough year ahead, inflation really hurts, in need of more working capital and supply chain issues are better, but still linger.***
(#1) 86% of SMB owners anticipate either a flat or recessionary economy this year (The highest since 2011).
Why this matters: Expect SMB owners to be all the more motivated to sell. If the business is coming off of a good year in 2022, remind the owner that selling now might result in the highest/ best-case sales price, especially if 2023 is a dumpster fire. There's an old marketing adage that rings true: "Always enter the conversation already taking place in the prospect's mind."
(#2) The majority of SMB owners picked “inflation” as the top challenge facing their business.
Why this matters: Technically speaking, when inflation is high (and rising), businesses that require large capital investments struggle to perform well. For these business, you'll want to ask how successful they've been at passing rising costs along to their customer base in the form of higher prices. If their response is something like "we've never tried that" or "we tried but customers won't pay more," this could be a giant RED FLAG! If a business hasn't figured out how to "absorb" the impact of inflation, would you want to own it? On the flip-side, asset-light, service-based businesses should have some natural pricing power, assuming their services are somewhat "essential" (i.e. residential plumbing).
(#3) More than one-third of SMB owners (37%) say they are unable to obtain adequate financing—the highest this indicator has been since 2008.
Why this matters: Assume some of these businesses are STARVED for capital. For this reason, when you pitch these owners on buying their business, talk about how you can immediately inject more working capital into the business post-close (via an SBA Line). This extra liquidity can help protect the business (and it's loyal employees) from a really difficult year.
(#4) "Supply chain concerns" have improved, but 22% of SMB owners STILL say they're experiencing product delays.
Why this matters: Let's face it -- supply chains are extremely nuanced. You've got geographic constraints, raw material volatility, tariff and tax changes, political conflict, etc. If you're targeting a business who even mentions the phrase "supply chains," make sure you take a deep-dive into the details. To be fair, a clunky supply chain could be your biggest opportunity to create value. Maybe the business only has one supplier, and you figure out how to re-bid the work and drive down cost. It's possible! But on the flipside, this is why service businesses can be really wonderful. If you can crack the "labor market" nut of your specific service business, you don't have to worry as much about supply chain woes. Glory hallelujah!
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