Business-for-Sale Market Hot and Balanced

by Bob House

A record number of businesses were bought and sold across the nation in the early months of 2017, according to 2017 Q1 Insight Report from BizBuySell, an online business-for-sale marketplace.

A total of 2,368 closed transactions were reported in the first quarter of 2017, a 29-percent increase from this time last year. Though the spike in small-business transactions may be partly due to a rush of buyers and sellers looking to close deals around the New Year, a healthy economy, strong small-business financials, and access to financing are also enticing more buyers and sellers to the market.

Businesses sold in Q1 grossed a median revenue of $518,159, an 8.4-percent increase from $478,000 in the first quarter of 2016. Median cash flow also increased, up 6.6 percent year-over-year to $117,275 from $110,000. These key financial indicators are the highest totals since BizBuySell first started tracking data in 2007.

In addition, the average multiple of cash flow, which remained flat over the past few quarters, increased 1.6 percent from 2.31 to 2.35. At the same time, the average multiple of revenue increased 2.5 percent from 0.59 to 0.61. These higher multiples emphasize how important it is for small-business owners to improve profitability as they move closer to listing their business for sale.

High Sale Prices and Listing Numbers Points to a Balanced Market

The strong financials of businesses reported sold in the first quarter of 2017 resulted in owners receiving higher values for their business upon exiting. The median sale price increased nearly 8 percent from $220,000 in the first quarter of 2016 to $237,000 in 2017 despite the median asking price remaining flat at $250,000. This puts the average sale-to-asking-price ratio at 0.92. The strong ratio indicates the market is becoming more balanced, with healthy financial figures bringing both parties closer together in their assessment of fair market value.

Over the past few quarters, the number of small businesses listed for sale has steadily increased. That trend carried over into 2017 as total listings increased 3.8 percent from last year. These newly listed businesses boast growing median revenues and cash flows, suggesting there’s still a strong supply of healthy businesses available for interested buyers. Baby boomers looking to capitalize on today’s favorable conditions and exit small-business ownership for retirement are fueling the market supply. At the same time, younger buyers are finding attractive, healthier businesses for sale with greater access to lending, again pointing to a well-balanced market.

Sales by Sector

Looking into specific industries, the restaurant and retail sectors experienced the greatest growth. The number of closed transactions in the restaurant sector increased 29 percent year-over-year, and the median sale price jumped from $148,000 to $191,250. Higher sale prices were likely a result of improved financials. The median revenue of restaurants increased 33 percent from $432,000 to $574,679, while cash flows increased 23 percent to $105,029. Retail business transactions increased 28 percent, just shy of the growth recorded in the restaurant sector.

Looking Ahead to the Rest of 2017

Overall, first quarter data confirms that small-business listings, financials and transactions are continuing on a positive trend in 2017. Unsurprisingly, this trend mirrors the improving U.S. economy and stock market, which have surged over the last year. Still, buyers and sellers entering the market should keep an eye on changing federal and local policies and global market conditions that could impact the business-for-sale environment.

Business for Sale – Phoenix-Mesa-Scottsdale

Business Type  No. Median Asking Price Avg. Multiple of Revenue Median Revenue Median Cash Flow Avg. Multiple of Cash Flow
Retail – Restaurant 320 $199.000 0.51 $448,989 $90,000 2.33
Retail – Other 378 $175,000 0.61 $455,000 $90,000 2.60
Service 553 $196,000 0.84 $260,000 $87,350 2.50
Manufacturing   36 $440,000 0.71 $817,874 $156,942 3.83
Other   83 $549,000 0.84 $787,871 $208,028 2.84
All Business Types 1370 $199,990 0.69 $378,685 $95,500 2.55
Year-over-year change 52% 14.3% 0.4% 8.2% 19.4% -3.5%

Breakdown of Active Listings by Asking Price – Phoenix-Mesa-Scottsdale

Price No. % of Total
$0 – $50,000 99 7%
$50,001 – $100,000 260 19%
$100,001 – $200,000 357 26%
$200,001 – $300,000 210 15%
$300,001 – $500,000 188 14%
$500,001 – $1,000,000 173 13%
$100,000,001 + 83   6%

Overview – Phoenix-Mesa-Scottsdale

Businesses for Sale % of Total
Median asking price $199,990
Median revenue $378,685
Median cash flow $95,500
Owners asked for, on average, a revenue multiple of 0.69
Owners asked for, on average, cash flow multiple of 2.55

Source: BizBuySell’s Q1 2017 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 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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