Better financials give more small-business owners incentive to sell
By: Bob House
The first quarter of 2016 was a great one for both buyers and sellers in the small-business market. While slightly more transactions closed than at the same time last year, the biggest finding in BizBuySell’s Q1 2016 Insight Report is that a huge number of financially healthy businesses are hitting the market.
The growing financial performance of these listings means sellers will be able to get more for their business while prospective buyers will have a wider range of stable listings to choose from.
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. More impressively, however, businesses that sold in the first quarter had the highest median revenue and median cash flow since BizBuySell started tracking this data in 2007. This bodes well for both buyers and sellers looking to enter the market in 2016.
Key findings from this quarter’s report include:
Small businesses continue to grow financially 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 numbers represent the highest median revenue and median cash flow of sold businesses since BizBuySell first started tracking this data in 2007.
More owners were looking to sell in early 2016
Likely due to strengthening business financials and corresponding sale prices, many owners are deciding now is a good time to sell. The number of business listings on BizBuySell grew more than 6.4 percent from the same time last year.
The Q1 2016 listings total marks the highest number of businesses listed for sale since the first quarter of 2009, after which both listings and sales dropped significantly in response to the economic downturn. A number of factors may be behind this uptick in listings, including the growing number of retiring Baby Boomers.
A more balanced market
Even after the worst of the Great Recession, the business-for-sale market continued to favor buyers. However, improving financials are allowing sellers to demand more for their business. 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 indicates a healthy average sale to asking price ratio of 90 percent, and suggests the market may be shifting towards sellers.
Service and retail industries improve, while restaurants decline
Both the service and retail industries kept pace with the improving health of small businesses around the country. The median asking price of a service a business grew 19 percent to $260,000, while the median sale price jumped from $190,800 in the first quarter of 2015 to $226,000 in the same period of 2016.
The financials of sold retail businesses continued on a positive trend. The median revenue of retail businesses rose from $537,500 in quarter one of 2015 to $551,052 in quarter one of 2016 and the median cash flow of sold retail businesses increased from $99,355 to $103,227.
On the other hand, the restaurant industry experienced a slight decline in performance this quarter. Likely due to declining financials, the median asking price of a restaurant slid 10 percent to $159,000 and the median sale price decreased from $149,500 to $148,000.
While this decline shouldn't be seen as a seismic threat, it may hint at how increased labor, healthcare and operating costs are affecting the industry. This industry in particular is keeping a very close eye on changing local and national regulations impacting minimum wage rates and health insurance requirements.
Overall, the data indicates that the small business-for-sale environment is continuing on a positive trend with strong transaction levels and improving financials. As we move into the second quarter of the year, traditionally one of our most active quarters, small business transactions are expected to continue at a strong pace as sellers provide the market with valuable listings and more buyers look to take on the task of small business ownership.
Bob House is general manager for BizBuySell.com and BizQuest.com, the Internet's largest and most heavily trafficked business-for-sale marketplaces. Together, BizBuySell and BizQuest offer an inventory of tens of thousands of small businesses for sale that refreshes continually and receives more than 2 million monthly visits from business owners and aspiring entrepreneurs. House is a recognized spokesman on small business transition issues.
For more information on selling a Southwest Florida business, businesses for sale, acquisition opportunities and business valuations; contact Florida Business Broker Dan Smith at dan@sellbusinessfl.com or 239.207.1632 for a free consultation. Visit our Corporate Investment Business Brokers website at www.floridabusinessbrokers.com or my personal website at www.swflbiz4sale.com.
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