BizBuySell Report: Small Business Transactions Down Slightly As Market Stabilizes From Robust 2014 Activity

BizBuySell
October 7, 2015

BizBuySell.com's Third Quarter 2015 Insight Report shows business-for-sale activity below last year's numbers; Retail industry & Pacific region experience biggest year-over-year declines

San Francisco, CA - BizBuySell.com, the Internet's largest business-for-sale marketplace, reported today that the number of small businesses transactions occurring in the third quarter dropped nearly 9 percent from the same time last year. Brokers reported a total of 1,814 businesses changing hands during the quarter, down from the 1,987 in 2014, as well as the 1,913 recorded in Q2 2015. While the third quarter is typically slower than the second, the year-over-year drop indicates a stabilized activity level after the market reached a record high in 2014. The full results are included in BizBuySell's Q3 2015 Insight Report, which aggregates statistics from business-for-sale transactions reported by participating business brokers nationwide.

2015 Q3 Closed Small Business Transactions

While slightly fewer transactions occurred in Q3, businesses listed for sale during the quarter grew stronger financially, pointing to an increasingly valuable supply for potential buyers. The median revenue of listed businesses grew to $450,000, up from $432,556 in 2014; the median cash flow rose from $100,00 in Q3 last year to $104,000 this year. The improved financials led to a slightly higher median asking price, up to $250,000 compared to $248,189 last year.

At the same time, businesses that sold during the quarter yielded returns similar to last year. The median sale price of a business sold in Q3 slipped slightly from $189,000 last year to $185,000 this year and the median asking price remained stable at an even $200,000, equaling a strong 94.5% ask/sale ratio. On a positive note, the median revenue of sold businesses grew from $423,828 in Q3 2014 to $438,000 in Q3 2015. The median cash flow of sold businesses held consistent at $100,000. Overall, the rise in revenue but lack of cash flow increase means that while business growth continued during the quarter, profits likely remained stagnant for sold businesses. This helps to explain the slight decrease in asking price compared to last year, as buyers seek more value to compensate for increased expense. Listed businesses, however, with 4 percent median cash flow growth, showed higher profitability, demonstrating a positive outlook for small businesses that will sell over the next few months.

2015 Q3 Small Business Sale Price vs Asking Price

2015 Q3 Key Financials of Sold Small Businesses

"After a very active 2014, this year's small drop in transactions should be viewed as a stabilization of the market rather than a trend in the opposite direction. Overall, the buying-selling environment remains very robust," Bob House, Group GM of BizBuySell.com and BizQuest.com said. "The consistently strong financial performance of small businesses bodes well for the future and is why owners are growing more confident in their ability to earn healthy sale prices upon exit."

Retail Industry, Pacific Region Experience Largest Transaction Drops

While the slower transaction activity shouldn't be considered a systemic threat to today's market, it's interesting to note that the retail industry saw the biggest decline, with 17 percent fewer businesses changing hands during the quarter compared to last year. As activity slowed, the price retail owners were able to receive for their sale also dropped. The median sale price of a retail business fell to $155,000 from $189,000 during the same time in 2014. These declining sale prices reflect slowing revenues and cash flows in the industry. The median revenue of a sold retail business fell from $500,000 last year to $450,000 this quarter, while the median cash flow fell from $95,028 to $86,560.

One bright spot of the industry breakdown was the performance of restaurants compared to last year. The median sale price of sold restaurants grew from $149,500 to $160,000 as a result of improved median cash flow (up to $500,000 from $479,452 in Q3 2014).

Geographically, the Pacific region drove down transactions with a 22 percent drop from the same time last year. The decrease in businesses changing hands may be attributed to lower financials in the area. The median revenue of Pacific small businesses sold in Q3 dropped significantly from $429,000 last year to $360,000 this quarter. Median cash flow also fell from $101,000 to $91,200. Weaker median financials contributed to a smaller median asking price ($197,000 compared to $200,000) and an even larger dip in the median sale price ($175,000 compared to $199,000). The average cash flow multiple in Q3 2015 dropped from 2.56 last year to 2.28 this quarter, suggesting that buyers are demanding more value given risk of slower growth.

2015 on Pace for Slower Transaction Activity, Stronger Small Business Performance

Overall, this year's small business transaction data appears to be following the trend of the past few years: steady activity along with improving financials. Transactions are on pace to dip just 3 percent from 2014 levels, which were the highest since BizBuySell started tracking data in 2007. As the market stabilizes, we can expect to see these levels plateau and continue near this high water mark. For buyers, this represents a strong value opportunity as a result of increasing revenue growth and stabilizing prices.

At the same time, the rising financial indicators show that there is a large amount of high-performing small businesses still on the market. The median revenue of small businesses has been on a steady incline since mid-2012, leading to higher sale prices upon exit. As more owners grow confident that they can achieve a profitable sale, we expect even more businesses to hit the market. In fact, our recent BizBuySell Buyer-Seller Confidence Index reported a Seller Confidence Score of 62, up after two consecutive years at 56.

2015 Small Business Confidence Index

"We've seen a steady increase in the amount of for-sale business listings over the past few years. As their financial results continue to perform well, we expect small businesses to be highly desirable purchase options," House added. "With buyers also finding more access to capital in today's improved economy and lending environment, the market is set up for continually strong transaction levels."

About the BizBuySell.com Insight Report

BizBuySell.com is the Internet's largest marketplace for buying or selling a small business, with over monthly visitors. 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. Closed transactions are reported to BizBuySell.com on a voluntary basis by business brokers nationwide. To find a qualified business broker in your area, visit http://www.bizbuysell.com/business-brokers/.

Media Contact:

Bobby Chilver
Walker Sands Communications
office: (312) 546-4712
email: robert.chilver@walkersands.com

NOTE: For additional statistics, please see the latest BizBuySell Insights Report


About BizBuySell

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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