Small Business Sales are Not too Hot and Not too Cold
British Prime Minister Benjamin Disraeli is credited with the saying “There are three kinds of lies: lies, damned lies and statistics.” BizBuySell have announced the results of their analysis of the first quarter of 2016 and how the national market is performing with the sale of small businesses. If you’ve been looking to buy a business you may think the market is too hot. If you’ve been looking to sell a business you may think the market is too cold. If you look at the statistics you find it’s not too hot and not too cold.
Here are some of the highlights from the information put together by BizBuySell and their analysis of the first quarter of 2016.
The good news, if you are a seller, is that in the first quarter of 2016, businesses had the highest median revenues and cash flows on record. This means financials are getting stronger and the selling price of a business appears to be encouraging more owners to put their business on the market as the number of businesses listed for-sale grew more than 6.4 per cent.
More good news for sellers when looking at the first quarter of 2016 and comparing it to 2015 includes the following:
- The median revenue of sold businesses was $478,000 compared to $442,000.
- The median cash flow $110,000 compared to $104,000.
- The median small business asking price grew 11 percent in the past year to $249,500, while the median sale price increased 10 percent year-over-year from $200,000 to $220,000.
To look at the information in closer detail and see how it compares to previous years, the following is interesting.
Closed Small Business Transactions
As the chart below shows, a total of 1,840 closed transactions were reported in the first quarter of 2016, a slight increase from the 1,830 transactions in the first quarter of 2015, however the businesses that sold this quarter appear to be much healthier. Businesses sold in the first quarter of 2016 grossed a median revenue of $478,000 compared to $442,000 last year, and a median cash flow of $110,000 compared to $104,000. These figures represent the highest median revenue and median cash flow of sold businesses on record at BizBuySell.
Key Financials of Sold Small Businesses
The improving financials are allowing sellers to ask for and receive more during the sales process.
The median small business asking price grew 11 percent in the past year to $249,500, while the median sale price increased 10 percent year-over-year from $200,000 to $220,000. That marks a healthy average sale to asking price ratio of 90 percent.
The increase in sale price is a great sign for sellers as it suggests the market may be shifting in their favor. However, it’s important to remember that these are national figures and the buying and selling of a business happens at a local level. In addition, according to the California Association of Business Brokers only about one in five or 20% of businesses actually sell. Also, it takes approximately 8.5 months to sell a business; if it sells.
Small Business Sale Price vs Asking Price
As is shown in the chart below, the better financial performance by business owners is allowing them to both ask for and receive more for their businesses. The median asking price grew 19 percent to $250,000, while the median sale price jumped from $190,800 in the first quarter of 2015 to $226,000 in the same period of 2016.
At a macro level, the first quarter of 2016 shows that small business listings, transactions and financials are all continuing on a positive trend. Confidence in the economy remains good with the Federal Reserve reluctant to increase interest rates and hopefully continue to translate into a strong spring and summer in the business-for-sale market.
If you would like to read the full report from BizBuySell.com, please click this link.
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.