[IMGCAP(1)]The number of purchases and sales of small businesses, at an all-time high in 2013, grew even more during 2014. In addition to further showing signs of a reviving economy, this is good news for baby boomer business owners who want to retire, and for entrepreneurs who want to own their own business.
Participating business brokers reported 7,494 closed transactions in 2014, an increase of over 6 percent from the 7,056 transactions in 2013.
“The number of closed transactions is the highest number of businesses changing hands since we started tracking the data in 2007,” said Bob House, group general manager of BizBuySell, the Internet business-for-sale marketplace.
“This marks the second straight year of such strong activity following several slow years during and immediately following the recession,” said House.
The figures were compiled from data submitted by over 1,000 brokers to BizBuySell for its Insight Report.
The increasing volume of small businesses changing hands can be attributed to a number of factors, according to House. “Brokers cited an increase in the number of qualified buyers in the market as the top driver of growth. The second most common response was the general improvement of the small business environment.”
Retiring baby boomers also make up a large portion of potential sellers, House observed. “Seventy-eight percent of the brokers we surveyed attribute at least a quarter of their sales to baby boomers,” he said.
The report supports the belief that small businesses are performing at a higher level. “The big story is that we continue to see strength in the marketplace,” House said. “There’s a clear upward trend in two financial metrics, median revenue and median cash flow. The median revenue of small businesses sold grew from $405,905 in 2013 to $417,562 in 2014.”
Improving financials gave sellers more leverage during the sales process, leading to a slight increase in the median sales price, from $180,000 in 2013 to $185,000 in 2014, according to House. Financial multiples grew modestly as the average revenue multiple rose from 0.59 to 0.61 and the average cash flow multiple moved from 2.212 to 2.24. “This indicates that while sellers are getting slightly higher returns out of their businesses, buyers continue to receive good value on their purchases,” he said.
“The other part of the story is that prices have been increasing,” he added. “The market was previously seen as a strong buyer’s market. As we came out of the recession, buyers wanted to buy into businesses for their improved performance, but it’s starting to balance out, and sellers are getting more for their business now. Fifty-nine percent of brokers still feel it’s a buyers’ market, but 20 percent feel it has balanced out, and 18 percent feel it’s now a sellers’ market.”
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