Small-Business Sale Prices Reach Record Highs to Start 2018

Balanced market of buyers and sellers
by Bob House


The first quarter 2018 Insight Report from BizBuySell.com, the Internet’s largest business-for-sale marketplace, shows a record-breaking quarter for the business-for-sale market for sales prices and completed transactions, highlighting a positive start to the new year.

Small businesses sold for a median sale price of $245,000 in the first quarter of 2018, the highest sale price since BizBuySell started tracking the data in 2007 and a 3.4 percent increase from a year ago. The median asking price of sold businesses also hit a record high at $262,000, a 4.8 percent increase from 2017. Small-business owners should take note of the record prices. For those considering a sale, now appears to be a great time to at least contact a broker and ask how their business stacks up against the overall market.

While business owners are getting more for their business, the data does not necessarily indicate a seller’s market. As is evident by the 0.92 sale-to-asking price ratio, buyers are willing to pay higher prices, but that may be due to the financial stability attached to these businesses and a strong optimism for continued growth. According to the National Federation of Independent Business (NFIB) February’s Small Business Economic Trends Survey, “small-business owners are showing unprecedented confidence in the economy.” BizBuySell data corroborates this sentiment.

Median cash flow is often considered the best indicator of a business’s success. The median cash flow of businesses sold in Q1 increased to $120,000, a 2.3-percent increase over the same time last year. Additionally, BizBuySell’s latest small business owner poll shows that 72 percent of owners believe financials will continue to rise in 2018. Notably, tax reform appears to be one of the larger factors driving this positive outlook. According to the opinion poll data, more than 48 percent of small-business owners believe the tax changes benefit small businesses compared to just 24 percent who said they are harmful. Tax reform also appears to be good news for the overall small-business environment, as 60 percent of benefiting owners plan to hire additional employees in 2018 and 57 percent plan to increase compensation.

With owners entering the market to capitalize on rising prices and buyers willing to spend more for healthier businesses, the net result was 2,678 businesses sold in the first quarter of 2018. This represents a 13.1-percent increase from this time last year and the most businesses reported as sold in a quarter since BizBuySell began collecting this data.

Similar to the number of businesses sold in the first quarter, businesses placed on the market also increased, up 6.9 percent. These businesses also boast growing financials, suggesting there is still a large amount of healthy businesses available for interested buyers. It is likely that baby boomers will continue capitalizing on today’s favorable conditions and exit small-business ownership for retirement in large numbers. At the same time, younger buyers are finding attractive businesses for sale with good access to lending, pointing to a balanced market with few signs of slowing down.

Q1 2018 Business-for-Sale Active Listings in Phoenix-Mesa-Scottsdale

BizBuySell Active Listings – Business-for-Sale Data
Business Type N Median Asking Price Median Revenue Avg. Multiple of Revenue Median Cash Flow Avg. Multiple of Cash Flow
Retail – Restaurant 284 $185,000  $400,000  0.47  $92,174  2.18 
Retail – Other 428 $155,000  $385,000  0.53  $80,000  2.50 
Service 553 $150,000  $264,000  0.77  $84,000  2.53 
Manufacturing 41 $415,000  $745,252  0.68  $135,136  3.19 
Other 101 $315,000  $579,351  0.74  $148,568  2.40 
All Business Types 1,407 $175,000  $366,000  0.63  $88,679  2.46 
Year-over-year change 2.7% -12.5% -3.3% -8.6% -7.1% -3.3%

 

Breakdown of Active Listings by Asking Price
Price N % of Total
$0 – $50,000 137 10%
$50,001 – $100,000 276 20%
$100,001 – $200,000 355 25%
$200,001 – $300,000 209 15%
$300,001 – $500,000 199 14%
$500,001 – $1,000,000 130 9%
$1,000,001+ 101 7%

Source: BizBuySell’s Q1 2018 Insight Report

Bob House is president of BizBuySell, the Internet’s largest business-for-sale marketplace. Since 1996, BizBuySell has offered tools that make it easy for business owners and brokers to sell a business, and potential buyers to find the business of their dreams. The company releases its BizBuySell.com Insight Report on a quarterly basis, reporting changes in closed transaction rates, valuation multiples and other economic indicators for the small-business transaction market.

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