Businesses sold moves higher
The businesses-for-sale marketplace in the 2nd quarter of 2018 continues to break records based on the survey from BizBuySell.com.
According to the report there were a total of 5,383 businesses sold in the first two quarters of 2018 which puts 2018 on pace to surpass the record number of businesses sold in 2017 of 9,919 transactions.
For the 2nd quarter of 2018 alone, the number of businesses that sold was 2,705 which is an increase of 6.7% over the same time last year and the most of any quarter since data was being tracked starting in 2007; as the graphic below shows.
What price are businesses selling?
The price a business sells is higher in 2018 than in previous years; just a little. The median asking price for a business in the 1st and 2nd quarter of 2018 was just over $250,000 while for all of 2017 the median asking price was just under $250,000.
Similarly, the median sale price of a business for the first two quarters of 2018 was approximately $248,000 while for all of 2017 the median sale price of a business was approximately $234,000; as the graphic below shows.
What price multiples are businesses selling?
One of the first steps when selling a business is to do a valuation. The valuation includes several calculations but two of the more important calculations are arriving at a value of the business based on a multiple of cashflow and a multiple of revenue.
It would be natural to think if you are a seller of a business, that as the economy gets stronger, the multiple of cashflow and the multiple of revenue would increase. As the graphic below shows, this is not the case.
Just to be clear, if the gross revenue of a business and the cashflow of a business are increasing, the value of the business will increase.
The average sales price as a multiple of cashflow is about 2.4 while the average sales price as a multiple of revenue is about 0.6.
How long does it take to sell a business?
For 2018, the number of days a business is on the market before it sell is approximately 172 days. As the graphic below shows, this is about average but there can be large fluctuations.
An important metric to remember, according to the California Association of Business Brokers, is that only between 20% and 25% of businesses sell. Selling a business therefore comes with great risk and is not a quick process.
What industries are selling?
It’s always good to have a little perspective in a report about businesses for sale. Are some businesses for sale in some sectors doing better than others?
The answer is yes and should always be yes. In a normal economy, things are always changing, for example, interest rates, tax rates, laws, supply and demand and two of the biggest drivers of change; competition and technology.
As technology continues to evolve it forces change. Some good. Some not so good.
As the graphic below shows, the businesses that are selling the best at the moment are in the service sector at 38%, closely followed by the retail sector excluding restaurants at 27% and then the restaurant sector at 22%.
Final thoughts on businesses for sale
It can be tempting, if you own your own business, to look at reports like this and try and draw conclusions about the value of your business.
As Tip O’Neill, the speaker of the House of Representatives once said, “All politics is local” and so too is the value of a business.
The value of a business includes many variables.
There are macro variables such as the performance of the national and global economies, Federal interest rates, politics (for example, trade wars with other countries), Federal and State tax rates as well as local variables such as unemployment rates, local rules and regulations, the government debt of the local economy and how they are performing servicing that debt and more.
If you are ready to sell your business, it should not be a function of the value of your business; which is important. But what is more important is making sure your chances of selling your business are strong by having all the variables you control as positive as you can.
Are you thinking about selling your business and move to your next challenge? Would you like to know the value of your business? If you would like more information, please visit my website Business valuation.
For more immediate help you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.