[IMGCAP(1)]The number of purchases and sales of small businesses, at an all-time high in 2013, continues to show evidence of a reviving economy. This is good news for baby-boomer business owners eager to retire and aspiring entrepreneurs who are looking to own their own business.
Small business transactions remained at high levels in the first quarter of 2014, continuing the growth trend that began a year ago, in the first quarter of 2013, according to BizBuySell.com’s Insight Report.
Participating business brokers reported 1,726 closed transactions in the first quarter of 2014, marking the fifth straight quarter to exceed 1,600 transactions, a benchmark that had not previously been reached since before the start of the recession in 2008.
“While expected, it’s encouraging that the 2014 business-for-sale market started the year strong,” said Curtis Kroeker, group general manager of BizbuySell and BizQuest.com. “It shows that, despite 2013’s surge in business sales, we haven’t yet worked through the pent up supply and demand created during the Great Recession. It’s clear the buyers and sellers remain confident and ready to enter the market.”
“The Q1 transactions for 2014 were down 9 percent from the Q1 figures for 2013,” he noted. “But if you look at the longer term trend, the transaction level they fell off dramatically in 2008, and then flat-lined well below the non-recession transaction level for the next few years.”
Toward the end of 2012, conditions were right so that pent up supply and demand produced the huge jump in the number of transactions, according to Kroeker.
“Small businesses started to perform better, which makes them more saleable,” he said. “And financing became more available for buyers. Home values went up and the stock market rebounded. The great part of being an entrepreneur in these cases was that buyers were buying an existing business with an existing cash flow. The downside was that they needed to come up with the money to buy it, so people were using the value of their homes, or cashing out stock positions. And banks started to lend again.”
“There was a 14 percent increase in transactions in 2013 over the previous best year, 2008,” he observed.
While transaction volumes show it is a good time to sell, financial multiples show it is a great time to buy, Kroeker indicated. “Strong small business transaction volume, median asking price continuity, and median sale price show that sellers are enjoying healthy demand for their businesses,” he said. “In Q1 2014, the median asking price of sold businesses was $199,000—a figure equal to that seen in three of the prior four quarters. Moreover, the median sale price in Q1 2014 remained strong at $175,000 and is approximately $25,000 higher than the median sale price witnessed during the 2010 to 2012 period.”
“However, sales price multiples reveal that it remains a buyer’s market,” Kroeker said. “While sellers are getting much higher prices than they did just a few years ago, buyers are getting better value for their business-buying dollar. This is shown by multiples that remain at historic lows. The average multiple of revenue for sold businesses in Q1 slipped 1.2 percent year-over-year to 0.59 and the average multiple of cash flow fell 0.6 percent to 2.21.”