National Trends selling a business in 2019: What they mean to you

National Trends selling a business in 2019: What they mean to you

August 1, 2019 by Andrew Rogerson in Business valuations, Buy a business, Selling your business

One of the active places to list a business for sale is the national website BizBuySell.com. BizBuySell has been active in the businesses for sale marketplace since 1995.  Because of their unique position collecting and presenting information to the public about the market to buy and sell a privately held business, here is the latest information about the national trends selling a business in 2019 and what that may mean to you if this is something you plan on doing.

The questions from their survey covers the value of businesses for sale, how many businesses are for sale, what percentage of businesses are selling and more.

Here is a look at some of their data points and what’s happening in the market during the second quarter of 2019.

Active businesses for sale for the second quarter of 2019

• As the data above shows, for the second quarter of 2019 there were 42,097 businesses for sale.
• The Median Asking Price was $285,000
• The Median Gross Revenue was $535,658
• Businesses were selling for an average Multiple of Revenue of .76
• The selling of a business on average Median Cash Flow was $120,965.
• Businesses were selling for an average Multiple of Cash Flow of 2.99

Active businesses for sale by Asking Price for the second of quarter of 2019

Closed Transactions for the second quarter of 2019

“There are lies, damn lies and statistics.”

“There are lies, damn lies, and statistics” is a quote that has been attributed to different authors. Who said it does not matter, but its truth does.

What’s relevant as you read the above statistics and you are planning on buying or selling a business in the not too distant future, is that the information above has limited relevance regarding the value of your business and whether or not it will sell quickly.

Value and sell your business

If you are thinking of valuing and selling your business in the next 12 months, keep the following in mind.  Your business is unique and therefore has a unique value.  So your business brings you the highest return on your investment, treat it uniquely.

Reasons your business is unique include:

• The length of time you have owned and operated the business.
• The quality of your financial statements and how they reflect your ownership and operation of the business with the revenue and expenses you report.
• The number of employees you hire to help run the business, their skillset and how you train and compensate them.
• The status of your lease if you operate the business from a physical location.
• The accuracy and quality of your financial statements.
• The strengths and weaknesses of your business.
• The amount of direct and indirect competition.
• What changes will a new owner need to make for the business to be successful?
• What is happening in your industry with government regulation, changes in technology and the local economy that your business operates from.
• The condition of the fixtures, furniture and equipment that transfers to the buyer.
• Does the business require any federal or state licenses and if so, are these transferable to the buyer?

The above provides a summary of a set of facts you must determine for yourself. Again, your business is unique including the way you own and operate it. A buyer will want to know the above information and much more to decide if buying your business is right for them.

How does your business compare?

Also, keep the following in mind.  How your business performs when it compares to other businesses in the same industry as yours? There are approximately 20 primary two-digit NAICS codes. These break down to 96 subcategories and 317 industry groups. An effort must be made by a qualified appraiser to get a set of data points that are as close to your NAICS code as possible. After all, it makes no sense to compare the performance of your business against the performance of other businesses in totally different industries.

Here is a link to an article about the sale of businesses in 2018 and specifically Northern California.

Price is Not the Key to Selling a Business

It is easy to think cost and revenue are the most important factors for a buyer when you are selling your business. As the questions above show, there is more to selling a business than just the price.

It is critical to be clear about the many details of your business, what it includes and excludes and why you are selling.

For a business to sell successfully it requires two mandatory ingredients, a motivated buyer and a motivated seller. It is not unusual in a transaction to have a motivated seller as they typically have achieved all their goals and are ready for a fresh new owner to come and take it in a new direction.

Not all buyers are always motivated. Something I’ve learned from experience is that the longer a buyer has been looking to buy a business the less likely they are to decide to buy. It can help to understand who is going to buy your business.

Valuing and selling your business?

If you are planning to value and sell your business in 2019, make sure your financial statements are accurate and up to date. Buyers will be looking for the last full three years of financial performance, a Year To Date Profit and Loss statement and a recent Balance Sheet. This information will not only be required by the buyer but also any third-party lender they decide to help them obtain financing such as an SBA loan.

Poor quality financial statements are the number one reason a buyer inquires and then walks away from completing the sale. That is, a motivated buyer is simply not willing to accept financial statements that make them uncomfortable. I see this time and time again.

If you have questions about the value of your business or the steps it takes to sell a business, send me an email to info@rogersonbusinesservices.com or give me a call on (916) 570-2674.

If you are then ready to sell your business and its located in California, you may find it interesting why selling a business is different in California than any other state in the US.