If you were selling your restaurant in 2012, you might be part of a crowd that waited until the final hour to pull the trigger over worries about the Fiscal Cliff.  Biz Buy Sell, the nation's largest business for sale website released statistics last week showing what the restaurant brokers experienced firsthand when selling your restaurantlast year.  Sales peaked in December with very strong year end results since when Washington gets involved, behavior is modified.  The company’s Fourth Quarter "Insight Report" shows that closed transactions spiked significantly in the final weeks of 2012 as the Fiscal Cliff deadline created uncertainty in the marketplace. 

According to the company’s latest release, “BizBuySell.com's Q4 2012 Insights Report shows a 43.4 percent jump in business-for-sale activity during the final three weeks of December relative to 2011's year-end sales pace."  That means lots of activity was happening in those final days of 2011.  The restaurant brokers experienced a similar growth in business with multiple closing occurring in the final weeks of the year.  That’s definitely not in line with prior years since usually bar or restaurant buyers want to take over the first of the year or close after the liquor license has been paid for the upcoming year.   However, like all Americans, the restaurant brokers know that when Washington gets involved, the law of unintended consequences kicks in.  The latest example is a recent report showing that the “Cash for Clunkers” program not only distorted the used car market but it also actually created more trash in landfills (3 to 4 million tons by some estimates) than it cured in its goal of “greening” America by putting us into more fuel efficient cars.   

The “fiscal cliff” ended up being one of the most popular phrases of 2012.  The term refers to the issues faced by the country when the Budget Act of 2011 along with the Bush tax cuts were set to expire at year end of December.  Though it was avoided by an eleventh hour negotiation between the White House and the Congress, it appeared that the restaurant brokers, along with most sellers and buyers were still betting on what they did know versus what they didn’t. 

What were the unintended consequences from politicians failing to do their job in D.C. on the fiscal cliff?  Increases of 43% over last year in closings shows sellers wanted the deals done and it may have been at any cost.  If you were selling your restaurant, you faced with an uncertain tax climate.  If you were selling your restaurant in 2012, you knew what the tax bill would be.  If you waited until 2013, you didn’t know until a deal was brokered at the final hour, too late to sell your restaurant before year end.  Did that mean restaurant sellers rushed to judgment to accept offers since they knew what the capital gains tax implications of selling your restaurant would be?  We’re not sure but we do know the only information that had available was based 2012 tax law since nothing was written or negotiated for 2013.

That wasn’t the only finding from the article.  The company also reported that while activity peaked in the final weeks of the year, overall transactions were roughly flat to the prior year for all businesses sold.  That shows that sellers and buyers were in a “wait and see” mode in the first three quarters of the year.  They were waiting for Congress to act before finally pulling the trigger in December since it didn’t appear a deal was coming.

Atlanta year end statistics published in the same study group show that the Atlanta-Sandy Springs-Marietta market had 142 closed transactions at a median sales price of $165,000 and a multiple of cash flow of 2.54.  Keep in mind that this covers EVERY type of business, not just restaurants for sale.  Restaurants represented 19% of the total transactions covered in the report.

Did you change your behavior because of concerns over the fiscal cliff?  The restaurant brokers were on the phone with their CPA in the waning days of 2012 to make sure we had covered every contingency in our financial planning.  What did you do?

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Source of Data:  BizBuySell.com Insight Report

BizBuySell.com is the Internet's largest marketplace for buying or selling a small business. The company releases its BizBuySell.com Insight Report on a quarterly basis, reporting changes in closed transaction rates, valuation multiples and other economic indicators for the small business transaction market. Closed transactions are reported to BizBuySell.com on a voluntary basis by business brokers nationwide.