There’s a great online tool for those interested in buying or selling a small business.
BizBuySell.com, based in San Francisco, is the internet’s largest business-for-sale marketplace. It offers an online marketing platform to list and, hopefully, to sell businesses. The site also features an extensive franchise directory as well as a business-valuation tool.
At any given time, BizBuySell.com lists approximately 45,000 businesses spanning 80 countries. BizBuySell’s Insight Report tracks the health of the U.S. small business economy. For sale and listing prices are tracked across 70 U.S. markets. This service provides a free shopping tool for prospective buyers, with a $50 fee for a base ad for three months to selling companies.
If you want to get an idea of what similar businesses in your industry are selling for, or perhaps you want to buy a business, the information includes listing and selling prices, the number of businesses sold and the median cash flow of those companies.
A summary of the Tampa-St. Petersburg-Clearwater market for the second quarter of 2017 shows that the median asking price for businesses for sale in this market on BizBuySell was $235,000 (56 percent of revenue). These businesses had a median annual revenue of $420,000 and a median cash flow of $101,381 (24 percent of revenue). Owners asked for, on average, a revenue multiple of 0.84 and a cash-flow multiple of 2.80.
BizBuySell analyzed 119 closed transactions during this period. Businesses sold for a median sale price of $330,000. That is 0.97 of the asking price. These businesses had a median revenue of $505,228 and a median cash flow of $140,010. Business buyers paid on average 0.99 times revenue and 2.79 times cash flow.
Of the 1,002 companies listed by asking price, only 13 percent were listed for sale at $1 million or more. Just under half were listed for sale at $200,000 or less.
The business with the highest multiple, 3.85, was for an internet vitamin and supplements e-ommerce retailer. The lowest multiple was .82 for a pool service route. The widest spread from asking price to sale price was a cigar bar and restaurant fetching 70 percent of the asking price.
Year-over-year changes were all positive. The number of businesses for sale was up almost 21 percent; median asking price was up almost 18 percent; median revenue was up 6 percent; the average multiple of revenue was up 4.4 percent; the median cash flow was up .3 percent; and the multiple of cash flow was up 3.3 percent .
A total of 2,534 closed transactions were reported in the second quarter of 2017. This is a 31 percent increase from last year. Year-to-date sales were 4,902. If this pace holds up, 2017 will surpass 2016, when BizBuySell reported 3,775 transactions in the first half of the year.
“Recent conversations with brokers and previous research shows that both buyers and sellers are confident in today’s business-for-sale environment,” said Bob House, president of BizBuySell.com. “This streak of record-number transactions confirms this sentiment.”
Increasing sales prices and fewer days on market benefit sellers. Owners who can show improving financials will be better positioned to find interested buyers and gain more leverage in consummating a deal.
Happy meals – The restaurant sector experienced solid growth in the second quarter. Closed restaurant transactions increased 34 percent year-over-year and the median sales price jumped from $165,000 to $195,000. The median revenue of restaurants nationwide increased 7 percent year-over-year, from $504,500 to $540,000, while cash flows increased 2 percent to $100,000.
Franchises – Increasingly seen as desirable acquisition targets, franchises made up 7 percent of active listings and 9 percent of closed deals in the second quarter of 2017. Average cash-flow multiples for franchises was 2.44, compared with 2.34 for all transactions. Franchises also reported higher revenues compared to the median of all businesses. Closed deal median franchise revenue was $609,966, compared with $490,000 for all businesses.
Expensive markets – Sales prices rose across the U.S. and were up 31 percent in the Northeast. Closed deals jumped a dramatic 42 percent there. The Midwest experienced the smallest price increase, only 2 percent. The most expensive market to buy a business in the U.S. is the New York City metro area, where the median asking price is $295,000. This is followed by Philadelphia, Denver, Atlanta and Chicago.
Outlook remains strong – All signs point to continued growth in the business-for-sale market. Newly listed businesses boast growing median revenues and cash flows, suggesting there’s still a strong supply of healthy businesses available for buyers. Interestingly, the median asking price of businesses listed for sale of $250,000 remains unchanged from the second quarter of 2016, indicating sellers may be looking to close deals quickly while the market is hot.
Small business buyers and sellers should keep a close watch on legislation such as health care and tax reform, as well as global market conditions. Analyze the data and determine if these changes will affect exit or acquisition strategies.
“The latest quarterly data indicates the business-for-sale market is in great shape,” House said. “Barring unforeseen factors, we anticipate 2017 will set a new record for the number of businesses sold in a single year since we started reporting on this data in 2007.”
Note to readers: Manasota SCORE has completed its beta copy of its Exit Strategy Canvas roadmap. This roadmap serves as a detailed guide to exiting your business. To request a free sample please write to me.
Dennis Zink is a volunteer, certified mentor and chapter chairman of Manasota SCORE. He is the creator and host of Been There, Done That! with Dennis Zink, a nationally syndicated business podcast series. He facilitates a CEO roundtable for the Manatee Chamber of Commerce, created a MeetUp group, Success Strategies for Business Owners and is a business consultant. Email him at email@example.com.