The market for buying and selling small businesses cooled in the second quarter of 2026, but the decline in completed deals does not appear to signal a shortage of buyers. Instead, buyers are becoming more selective, lenders are applying greater scrutiny, and businesses with reliable earnings and clean financial records are gaining an increasingly important advantage.
A total of 2,117 U.S. businesses changed hands during the second quarter, down 10% from both the previous quarter and the same period in 2025, according to BizBuySell’s latest Insight Report. The transactions represented $1.8 billion in total enterprise value.
For small business owners, the numbers point to a market where simply putting a company up for sale may no longer be enough. Buyers remain active, but they are focusing more heavily on profitability, dependable cash flow, financing eligibility and whether a company can continue operating effectively after its current owner leaves.
That shift could affect owners on both sides of a transaction. Sellers may need to spend more time preparing their financial records and reducing their personal role in day-to-day operations. Buyers may need stronger financing credentials and a more disciplined approach to valuation if they want to compete for the strongest businesses.
Despite the 10% decline in transactions, valuations for businesses that did sell remained relatively resilient. The average cash flow multiple increased 2% from a year earlier to 2.7, while the average revenue multiple remained roughly unchanged at 0.7. The median sale price declined only 1% to $349,250.
That combination suggests buyers have not abandoned the market. They are concentrating their money on companies they believe can withstand economic pressure and continue generating earnings.
Buyers Put More Weight on Reliable Cash Flow
Financial performance weakened modestly among businesses sold during the quarter. Median cash flow declined 3% year-over-year to $155,921, while median revenue also declined 3% to $692,087.
Those declines come as many small businesses continue to deal with higher operating expenses. BizBuySell reported that 63% of business owners surveyed said inflation is not easing. Another 48% reported business disruptions related to higher fuel and energy costs following the U.S.-Iran conflict.
One business owner described the effect on clients in transportation and travel-related industries.
“We prepare taxes, and many of our small business clients have closed business and filed final tax returns due to the cost of fuel impacting profitability. They are communicating that their ability to increase fees is not keeping up with inflation. They cannot absorb the losses in the interim. This is coming from many transportation business owners and many other businesses related to travel,” said one owner.
For prospective buyers, conditions like these make revenue alone a less useful measure of a company’s strength. A company can generate substantial sales and still become less attractive if its costs are climbing faster than its ability to raise prices.
That has pushed buyers toward businesses with durable margins, stable operating expenses and a history of producing consistent cash flow.
Dave Strejeck of Sumtis Business Advisors in Pennsylvania said buyers are still searching for opportunities but exercising more discipline.
“I’m finding that buyers are still active and looking for solid opportunities, but they’re being very smart and strategic in the prices they pay for a business.”
The result is a market in which strong companies can still command attractive terms while businesses with weak records, owner dependence or inconsistent earnings may face more difficult negotiations.
“The market remains highly active, but the era of unstructured, high-multiple exits for average businesses has subsided. Preparation, clean financials, and minimized owner dependence are now absolute prerequisites to securing a successful close,” said Vipin Singh of Murphy Business Sales in New Jersey.
For owners who expect to sell within the next several years, that makes preparation increasingly valuable. Accurate financial statements, documented procedures, recurring customer relationships and management systems that do not depend entirely on the owner can all make a business easier for a buyer to evaluate.
Strong Buyer Demand Meets Limited Quality Inventory
The decline in transactions might suggest fewer people want to buy businesses. Brokers surveyed by BizBuySell paint a different picture.
Instead, they say there are fewer acquisition-ready companies capable of meeting the standards of buyers and lenders.
“Q2 was slower than Q1 in terms of completed transactions, primarily because fewer quality businesses came to market rather than a decline in buyer demand. Qualified buyers remain active, particularly for businesses with strong financial performance, recurring revenue, and experienced management,” said Jason Ward of TruView Business Advisors in Texas.
Much of that demand is coming from professionals who are reconsidering traditional employment.
Forty-six percent of buyers surveyed identified themselves as corporate refugees pursuing independence through business ownership. Another 14% described themselves as serial entrepreneurs, while 13% were recently unemployed professionals.
That trend creates a potentially significant opportunity for owners of established companies. Professionals leaving corporate careers may have management experience, personal capital and access to financing, but many would rather buy an existing business with employees, customers and revenue than launch a startup.
“Corporate professionals continue to represent a meaningful share of buyer activity. Many are motivated by a desire for greater control over their future and are actively pursuing established businesses with proven cash flow rather than starting from scratch,” said Tanya Popov of INIX Consulting & Brokerage in Michigan.
The buyer population is also changing in other ways.
Nearly half of business brokers surveyed, 48%, reported increases in Entrepreneurship Through Acquisition, commonly known as ETA, and Search Fund activity. Brokers also reported growing interest from MBA graduates and business school alumni.
Under these models, entrepreneurs typically search for established companies they can purchase and operate rather than creating businesses themselves.
“We are seeing a gradual increase in Entrepreneurship Through Acquisition and search fund activity, particularly in Texas. Universities such as Rice Business, along with growing interest from UT McCombs and Texas A&M Mays, are helping educate the next generation of acquisition entrepreneurs. At the same time, investors are becoming more familiar with the search fund model, providing aspiring business owners with greater access to capital. ETA is evolving from a niche strategy into a recognized path to business ownership, increasing competition for high-quality small businesses,” said Ward.
The growing sophistication of buyers means owners may increasingly find themselves negotiating with people who have studied acquisition strategy, assembled investors and arranged financing before approaching a seller.
It also means buyers may need to act quickly when a strong opportunity becomes available.
Profitability Takes Priority Over Growth
Buyers are showing clear preferences when evaluating acquisition targets.
Profitability ranked as their most important consideration, ahead of growth potential and industry stability. Eighty-six percent said they are looking for recession-resistant businesses, while 64% said they want businesses that are already thriving.
Those findings could be especially important for entrepreneurs preparing businesses for sale.
A seller who spends heavily to expand revenue without protecting margins may not necessarily increase the company’s attractiveness. In the current environment, buyers appear more interested in whether the business reliably converts revenue into earnings.
Recurring revenue can be particularly valuable because it gives potential buyers more visibility into future cash flow.
Businesses with contracts, subscriptions, recurring service appointments, maintenance agreements or long-standing commercial relationships may therefore have an advantage over businesses that must continually replace one-time customers.
Buyers are also likely to examine customer concentration, employee turnover, supplier dependencies and the role the owner plays in generating sales or delivering services.
A company whose customers primarily work with the owner personally may be harder to transfer than one supported by established processes, managers and employees.
SBA Financing Becomes a Major Deal Factor
Financing remains one of the largest forces shaping business acquisitions.
Nearly eight in 10 buyers surveyed by BizBuySell, or 78%, said they expect to use financing backed by the U.S. Small Business Administration to complete an acquisition.
That makes SBA eligibility important not only to buyers but also to sellers.
Brokers said tighter credit conditions and changes to SBA lending requirements are adding friction to transactions.
“The top macro concern for the remainder of 2026 is navigating the market’s bifurcation driven by sticky regional inflation and tightening credit constraints. Specifically, managing the transactional bottlenecks created by the March 2026 SBA citizenship rule updates and the strict 10% equity injection / full standby rules stands out as the most pressing challenge,” explains Murphy Business Sales’ Vipin Singh.
When a business can qualify for SBA-backed acquisition financing, buyers may be able to finance a substantial portion of the purchase rather than supplying the entire amount themselves.
That can increase the number of prospective buyers who can realistically complete a deal.
“For the Main Street and lower middle market, SBA eligibility is one of the single biggest drivers of marketability and valuation. It doesn’t necessarily make a business worth more on paper, but it can dramatically increase the number of qualified buyers and the probability of closing,” said Sheree C. Jones of Legacy Team Associates in Maryland.
For business owners considering a sale, that creates a practical step well before listing the company: determine whether the business is likely to pass lender underwriting.
Tax returns, financial statements, cash flow history, owner compensation, outstanding debts and other records may all affect the financing process.
If the documentation does not support the earnings claimed by the seller, a buyer may have difficulty obtaining a loan even when both sides agree on a price.
Seller Financing Could Determine Which Deals Close
As conventional and SBA-backed financing becomes more difficult, seller financing is emerging as another way to complete transactions.
Under seller financing, the seller allows the buyer to pay part of the purchase price over time rather than requiring the entire amount at closing.
“Seller financing has become an important tool for completing transactions, particularly when buyers and sellers have different valuation expectations. Even a modest seller note can strengthen SBA-financed transactions, improve buyer confidence, and reduce the amount of equity required at closing. In today’s market, seller financing is less about necessity and more about creating flexibility and aligning interests to get deals across the finish line,” said Jason Ward of TruView Business Advisors.
The challenge is that buyers and sellers have very different expectations.
BizBuySell found that 90% of buyers expect seller financing to play some role in their acquisition strategy. Only 29% of owners plan to provide it.
Almost half of sellers said they will not offer seller financing, while another 23% remain undecided.
That gap could become one of the biggest obstacles to transactions if credit remains tight.
Owners considering seller financing must weigh the potential benefit of reaching more buyers against the risk of receiving part of the purchase price over time. Buyers, meanwhile, may find that a reasonable seller-financing proposal can help bridge differences over valuation or lender requirements.
Most Owners Still Have Not Prepared for a Sale
Despite growing buyer scrutiny, many owners remain poorly prepared to exit their businesses.
More than half of owners surveyed, 52%, said they have an exit plan. But only 14% have completed a professional business valuation.
Half have only a rough estimate of what their company is worth, while 35% said they do not know its value at all.
That lack of preparation can create problems once negotiations begin.
A seller may have an asking price based on personal expectations, years of work invested in the company or what they need to fund retirement. Buyers and lenders, however, generally focus on documented earnings and comparable transactions.
Those different perspectives can produce large valuation gaps.
Owners also have differing priorities when selling.
Thirty-four percent said their priority is achieving a fast, low-stress sale. Thirty percent focused on maintaining business continuity and protecting employees. Another 30% prioritized maximizing the sale price.
Retirement remained the most common reason for selling, cited by 45% of owners. Twenty-nine percent planned to pursue another opportunity, 21% cited burnout, and 13% pointed to economic uncertainty.
“I have been busy with phone calls from aging and burned-out owners ready to sell. Not ideal without any exit planning,” said Joe Howell of East Coast Business Brokers, LLC.
Owners do not necessarily need to sell immediately to benefit from planning.
A business that spends several years improving financial reporting, developing managers, reducing customer concentration and documenting operating procedures may ultimately be easier to finance and transfer.
Service Businesses Continue to Lead the Market
Transaction volume declined across all major sectors during the second quarter, although the effects differed by industry.
Service businesses accounted for 40% of all transactions, making them the largest segment of the market.
Service-sector deal volume fell 11% from a year earlier, but the median sale price remained unchanged at $350,000. Average cash flow multiples increased 2%, while median time on the market improved 9% to 155 days.
Financial performance weakened somewhat. Median cash flow declined 4%, while median revenue dropped 7%.
Buyers nevertheless continued showing interest in service businesses with recurring revenue, low capital requirements and operations that can transfer to a new owner. Professional services, home services, healthcare-related companies and business-to-business providers were among the areas highlighted in the report.
The retail sector experienced an even larger decline in activity.
Retail transaction volume fell 15% year-over-year, the largest decline among the major sectors. The median sale price nevertheless held at $250,000.
Median revenue declined 5%, and median cash flow declined 3%. Average cash flow multiples increased 6%.
“Home services and anything with recurring revenue are still on fire. Retail appears to continue to be impacted by the Covid hangover, with high rents and long leases still scaring many buyers,” said Andrew Stokely of Franchise Broker Group in Tennessee.
For retail owners, lease terms can therefore become part of the valuation discussion. A profitable store carrying a long lease at above-market rent may be less attractive to a buyer than similar financial results would suggest.
Manufacturing Deals Take Longer to Close
Manufacturing businesses also experienced fewer transactions.
Deal volume declined 9% year-over-year, while the median sale price dropped 10% to $704,500.
The decline occurred despite stronger financial performance among the manufacturing companies that sold. Median cash flow increased 17%, while median revenue increased 15%.
Buyers nevertheless appeared cautious about pricing. Average cash flow multiples declined 7%.
Manufacturing transactions also took significantly longer to complete. Median time to close increased 17% to 247 days.
That longer timeline may matter to manufacturing owners planning retirement or another major transition. A sale can require months of financial review, financing approvals, facility evaluations, equipment assessments and negotiations.
Owners who wait until they urgently need to exit may therefore find themselves under pressure during the process.
Restaurants Face Continued Buyer Scrutiny
Restaurant acquisitions also slowed during the quarter.
Transaction volume declined 12% year-over-year, while the median sale price fell 12% to $205,000.
Median restaurant cash flow increased 2%, even as median revenue declined 8%. The average cash flow multiple increased 5%, suggesting buyers were still willing to pay for restaurant businesses capable of maintaining earnings despite lower revenue.
Restaurants remain particularly exposed to labor costs, food costs, rent and changes in discretionary consumer spending.
“Buyer interest is weakest in businesses with highly discretionary consumer spending, thin margins, or significant labor dependence. Traditional retail and many independent restaurants face greater scrutiny due to changing consumer behavior, rising operating costs, and execution risk. However, buyers are becoming more selective and are avoiding risk, not industries. Exceptional businesses continue to attract significant interest regardless of sector,” said Jason Ward of TruView Business Advisors.
That distinction is important. The data does not suggest buyers have stopped considering restaurants or retail businesses altogether. Instead, stronger operators appear to be separating themselves from weaker competitors.
Buyers Compete for High-Quality Businesses
The broader acquisition market increasingly appears divided between businesses that buyers aggressively pursue and those that struggle to secure financing or acceptable offers.
Matt Coletta of M&A Business Advisors in California said the long-anticipated increase in businesses coming to market as older owners retire has not yet occurred at the scale many buyers expected.
According to Coletta, “The market is saturated with well-capitalized, experienced buyers who possess impressive resumes and access to financing. However, the anticipated ‘silver tsunami’ of businesses for sale has not materialized. Instead of selling to third parties, some owners are opting to wind down operations or pass them to the next generation. This has created somewhat of a shortage of high-quality, sellable businesses with verifiable books that can qualify for an SBA loan, versus the large pool of qualified buyers competing for limited inventory.”
That shortage could give sellers of strong businesses considerable leverage.
It also creates a different environment from the one some aspiring buyers may expect after hearing claims that aging business owners will soon flood the market with inexpensive acquisition opportunities.
“This also means stop listening to social media influencers who make it seem like buyers have the power, they don’t, not for good opportunities,” said Coletta.
Buyers competing for attractive companies may need to demonstrate financing readiness before they begin serious negotiations.
Proof of funds, lender prequalification, relevant management experience and access to accountants, attorneys and other advisors can help distinguish one buyer from another when several are competing for the same company.
“With demand outstripping supply, sellers of desirable businesses are firmly in control. Buyers who attempt to negotiate aggressively or introduce difficult conditions are quickly moved to the ‘back of the line’ in favor of more seasoned candidates,” said Coletta.
That advantage does not extend equally to every seller.
“Market favors sellers for high-performing businesses (SDE $200k+ and SBA-prequalified) but shifts toward a buyer’s market for marginal businesses.”
The comment from Enterprise Business Brokers’ Vincenzo LoCricchio highlights the growing divide within the market.
Strong businesses with documented earnings and a clear path to financing may receive multiple offers. Companies with inconsistent financial records, limited profitability or significant operating risk may need to lower expectations or offer more favorable financing terms.
Owners Can Prepare Before Going to Market
For owners who think they may sell in the next few years, the Q2 data points toward several steps that could improve their position.
Keeping financial records current and making sure tax returns reflect the company’s actual operating performance can reduce questions during due diligence. Separating personal expenses from business expenses can also make earnings easier for buyers and lenders to evaluate.
Reducing dependence on the owner may be equally important.
A business that requires the seller to manage every customer relationship, approve every purchase and oversee every employee can appear riskier than one with managers and documented procedures.
Recurring revenue, diversified customers and stable employees can further strengthen the company’s profile.
Owners can also discuss financing eligibility with lenders before putting the business on the market. Discovering an SBA underwriting problem before negotiations begin provides more time to address it.
“Failing an SBA underwriting check doesn’t make a business unsellable, but it shifts the transaction from a competitive, bank-leveraged sale into one heavily reliant on seller concession and structured financing,” said Vipin Singh of Murphy Business Sales.
The same level of preparation can benefit buyers.
Entrepreneurs considering an acquisition can review their personal liquidity, credit profile and financing options before identifying a target. SBA prequalification may make it easier to move quickly when a suitable business appears.
Buyers should also look beyond headline revenue and examine how much money the company consistently produces after operating expenses.
Brokers Expect Activity to Increase
Despite the second-quarter slowdown, brokers remain relatively optimistic about the remainder of 2026.
Sixty-five percent expect deal volume to increase compared with the same period in 2025.
They point to several forces supporting continued demand, including corporate layoffs, worker burnout, interest in Entrepreneurship Through Acquisition and growing concern among professionals about the effect artificial intelligence could have on traditional careers.
“My outlook for the remainder of 2026 is genuinely optimistic, as the underlying drivers of deal activity remain strong and the trends we have been tracking throughout the year are only gaining momentum,” said Caleb Seegers of Exceptional Business Advisors. “The continued growth of ETA programs, the influx of corporate refugees from tech layoffs, and the sophistication AI is bringing to how buyers evaluate and operate businesses are all converging to create a deeper and more capable buyer pool than we have seen in some time, and that demand has to find a home in quality businesses. The primary work on our end is helping sellers get prepared early and pricing deals appropriately given the tighter financing environment.”
Small business owners can review the complete data and survey findings in the BizBuySell Insight Report.
For owners thinking about selling, the latest numbers suggest that timing alone may matter less than preparation. Businesses with verifiable earnings, transferable operations and financing-friendly records continue to draw attention even as overall transaction volume declines.
For buyers, the same market creates a different lesson. Opportunities remain available, but competition for strong businesses can be intense, making financing readiness and disciplined evaluation increasingly important.
Calder Capital’s Max Friar summarized the outlook this way: “Very bullish. Closings are picking up. The silver tsunami remains a trickle, however, the boomers can’t wait forever. It’s coming.”
Images via BizBuySell
This article, "Small Business Acquisitions Drop 10% as Buyers Get More Selective" was first published on Small Business Trends
