How Businesses are Selling in 2015
BizBuySell.com is one of the many websites that charges business brokers and other professionals to list and market a business for sale. Business owners can also list and try and sell their business on their own.
On a quarterly basis they prepare and release different reports that analyze what’s happening with the sale of privately held businesses. That is, the report comes from the businesses that are listed for sale on their website.
The website only lists businesses for sale in the United States. However, one of their reports looks at specific geographies, for example, Sacramento, CA which they define as Sacramento-Arden-Arcade-Roseville, CA. This seems an unusual way to define the Sacramento, CA market plus it shows the number of businesses for sale as being 212 which is much greater than shown on the California Association of Business Brokers website which they operate for this association.
The report for the third quarter is now complete. Here are some of the conclusions.
Closed Small Business Transactions
One of the data points from the report is the Closed Small Business Transactions. That is, it looks at the number of businesses for sale during the quarter and the number of businesses that sold. In the third quarter it shows a near 9% drop in small business transactions from the same time last year. This year-over-year drop indicates a stabilized activity level after the market reached a record high in 2014.
For those of us on the West Coast, across industries, the retail sector experienced the largest decline (17%) in transactions compared to last year, and geographically, the Pacific region saw a 22% drop in transactions.
Small Business Sale Price Versus Asking Price
One of the good tests for the businesses for sale market is how close the Asking Price is to the Sale Price.
If the Asking Price is close to the Sale Price then it means there is a strong economy with plenty of buyer interest. If the Asking Price is a long way away from the Sale Price then it means the economy is weak and sellers are desperate to sell their business.
The report shows that businesses that sold during the third quarter were able to yield returns similar to last year. That is, the median sale price of a business sold in the third quarter slipped slightly from $189,000 last year to $185,000 this year and the median asking price remained stable at an even $200,000. This equaled a strong 94.5% asking price/sale price ratio.
On another positive note, the median revenue of sold businesses grew from $423,828 in the third quarter of 2014 to $438,000 in the third quarter of 2015.
Key Financials of Sold Small Businesses
While slightly fewer transactions occurred in the third quarter of 2015, businesses listed for sale during the quarter grew stronger financially, pointing to an increasingly valuable supply for potential buyers.
The median revenue of listed businesses for sale grew to $450,000, up from $432,556 in 2014 while the median cash flow rose from $100,000 in the third quarter of 2014 increased to $104,000 this year. The improved financials also led to a slightly higher median asking price, increasing to $250,000 compared to $248,189 in 2014.
Small Business Confidence Index
The capitalist system is built on trust and confidence. If either is missing the economy goes down.
The good news is that rising financial indicators show that there is a large amount of high-performing small businesses still on the market. The median revenue of small businesses has been rising steadily since mid-2012, leading to higher sale prices upon exit. As more owners grow confident that they can achieve a profitable sale, expectations are that there will be even more businesses coming up for sale. This can be seen in the BizBuySell Buyer-Seller Confidence Index which reports a Seller Confidence Score of 62, up after two consecutive years at 56.
How businesses are selling in 2015
The sale of businesses in the third quarter of 2015 was not as strong as 2014. The reasons include that 2014 was a very strong quarter and so it would be difficult to repeat that performance. In addition, the third quarter of 2015 saw the affects from the fall out in the global economy with the slowdown in China and the instability of the Greek economy and its very public fight with Germany and the other members of the European Community as well as the International Monetary Fund or IMF.
Additional highlights from the third quarter of 2015:
- One of the very good pieces of good news from the report is the improving small business financials. For example, the median revenue of listed businesses in the third quarter grew to $450,000 which is up from $432,556 in 2014. Perhaps this helps explain the likely reason behind the increase in seller confidence; that is, stronger financials mean more business owners are confident they can achieve a profitable sale.
- Sale prices dip. The median sale price of a business sold in the third quarter slipped slightly from $189,000 last year to $185,000 this year, while the median asking price remained stable at an even $200,000.
- Retail industry experiences roadblocks. Across industries, retail saw the biggest decline in transactions, with 17% fewer businesses changing hands this quarter as compared to last year.
- Pacific region experience largest transaction drop. Geographically, the Pacific region drove down transactions with a 22% drop from the same time last year.
What’s the perfect time to sell a business? There really is no perfect time other than when you, as the owner of the business, are ready. Ready means you have something to move onto that’s just or more important than owning and operating your business.
If you would like more information about selling a business, buying a business, buying a franchise or a related service such as valuing a business, please visit my webpage Services and choose from the drop down menu the information you would like.
For more immediate help, you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.