Local business brokers see slight price decline
Fourth quarter drop bucks trend across country
Ron Dhillon decided to buy his own business in 2001, and he scoured Web sites until he saw a listing he thought was unique. The seller's business broker guided the process so that in three months, Dhillon was able to purchase the three-store British Food Centre chain for $800,000, including inventory.
"Starting from scratch would have been a lot of hard work because, in these kinds of businesses, 90 percent of your clientele is ex-pats, so you can't start this kind of business just anywhere," Dhillon says. "The existing owner already did his homework and opened in a place where there were already British people."
Dhillon bought the 20-year-old Campbell-based grocery chain from the original owner, who was retiring but stayed on for a few months to smooth the transition.
Dhillon credits business brokers for helping him sort through the documents, contracts and small business loans that make buying a business so complex.
The benefit of buying an established business is that it offers a market profile more detailed than any projection could. The seller shares detailed information about expenses, revenue and historical data, as well as relationships with customers and suppliers.
For that service, brokers take about 12 percent of the transaction, with a typical minimum between $12,000 and $15,000.
There are an estimated 800 business brokers in California, says Julie Gordon-White, director of the California Association of Business Brokers. Brokers have the same requirements and licensing as real estate agents but with extra training. No state organization tracks their ranks.
That's why it's hard to say how business brokerage is faring at any given time, but numbers released from the San Francisco-based online broker BizBuySell.com show San Jose-area sellers got slightly less than they were for businesses a few months ago.
The median asking price for businesses was $250,000 in the fourth quarter of 2007, down from $265,000 in the third quarter. Nationally, business valuations increased from $250,000 to $255,000 in the same period.
"It's tough to say why San Jose valuations appear to be dropping. It may very well be related to an increasing supply of businesses for sale that is resulting from baby boomers who are retiring and selling their businesses," says Mike Handelsman, general manager of BizBuySell.com.
BizBuySell is 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. BizBuySell currently has an inventory of approximately businesses - spanning 80 countries - for sale at any one time and receives more than monthly visits. The site also features an extensive franchise directory as well as an easy-to-use business valuation tool. Please visit www.bizbuysell.com for more information.
BizBuySell was founded in 1996 and in 2012 became a division of CoStar Group, Inc. (NASDAQ - CSGP) - commercial real estate's leading provider of information and analytic services. CoStar conducts expansive, ongoing research to produce and maintain the largest and most comprehensive database of commercial real estate information and offers a suite of online services enabling clients to analyze, interpret and gain unmatched insight on commercial property values, market conditions and current availabilities. For more information, visit www.costar.com.
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