Improved Small Business Financials, Stabilized Transaction Activity in 2015 According to BizBuySell.com Data

BizBuySell
January 11, 2016

BizBuySell.com's Fourth Quarter 2015 Insight Report shows that while the number of businesses that changed hands decreased slightly, key financial indicators reached all-time highs, indicating a healthy, more balanced market.

San Francisco, CA - BizBuySell.com, the Internet's largest business-for-sale marketplace, reported today that the number of annual small business transactions stabilized in 2015, ending the year down just 3.6 percent from 2014's record high. The full 2015 and fourth quarter results are included in BizBuySell.com's 2015 Insight Report, which aggregates statistics from business-for-sale transactions reported by participating business brokers nationwide.

A total of 7,222 closed transactions were reported in 2015, nearly matching the 7,494 transactions in 2014, which was the highest year-end total reported since BizBuySell started tracking data in 2007. Part of the reason transaction activity stabilized in 2015 may be that small businesses continue to grow financially healthier, allowing owners to ask for more money, creating a more balanced market.

2015 Q4 Closed Small Business Transactions

The median revenue of sold businesses in 2015 grew to $449,462, up from $417,562 in 2014 while the median cash flow crept up to $102,000 from $100,000 in 2014. Improved financials allowed sellers to both ask for and receive a higher price for their businesses in 2015. The median asking price grew 12.5 percent from $200,000 in 2014 to $225,000. The median sale price also increased a solid 7.6 percent year-over-year, from $185,000 to $199,000. The average sale to asking price ratio of 90% remained flat from 2014 to 2015.

2015 Q4 Key Financials of Sold Small Businesses

"After a very active 2013 and 2014, this year's small drop in transactions suggests the large rush of business owners waiting to sell during the recession may have now exited the market and we are left with a more stable, balanced environment," Bob House, Group GM of BizBuySell.com and BizQuest.com said. "Overall, the business-for-sale market remains strong. Business financial indicators are strengthening and owners are receiving stronger valuations, leveling out what has been a strong buyer's market in recent years."

BizBuySell's December survey of business brokers pointed to a shifting market as well. Fifty-two percent of all surveyed brokers believe the market still favors buyers, down from 59 percent in 2014. At the same time, the number of brokers who feel the market is evenly balanced rose from 20 to 24 percent. As small business owners continue to ask for and receive more during the sales process, these numbers will continue to shift toward the middle.

Fourth Quarter Trends Echo Annual Data as Transactions Dip, But Financials Continue to Climb

In addition to the annual data, BizBuySell's Insight Report also revealed a healthy fourth quarter to end the year. Overall, the last quarter of 2015 saw 1,683 closed transactions, a decrease from the 1,848 transactions in Q4 of 2014. However, the financial performances of those sold businesses improved greatly, with revenues at an all-time high.

The median revenue of sold businesses reached $460,467, the highest revenue total since BizBuySell started tracking this data. The median revenue sat at $445,146 during Q4 last year. At the same time, the median cash flow also increased slightly from $103,829 in Q4 of 2014 to $105,000 in Q4 of 2015. Strong financials likely encouraged sellers to ask for more, leading to a higher median asking price of $229,000 compared to $224,990 in Q4 of last year. This echoes a similar rise in asking price in Q4 of 2014. In 2014, however, sellers actually began to receive higher sales prices as a result of the increasing asking prices. In 2015, while sellers again asked for more, the median sale price remained consistent year-over-year at $200,000.

2015 Q4 Small Business Sale Price vs Asking Price

The restaurant industry drove much of the transaction lag in Q4 2015, experiencing an 11 percent drop from the same time last year. While transactions were down for the restaurant industry, financials were up. Perhaps driven by growing revenues and cash flow, both the median asking price and sale price of restaurants were up from $175,000 to $185,000 and $149,000 to $160,000 respectively, suggesting sellers may be more willing to wait until they get the right offer.

"Higher labor, food, beverage and other supply costs, as well as increased occupancy and utility expenses are forcing restaurant owners to be more creative in how they operate their businesses," said Steve Zimmerman, founder and principal broker of Restaurant Realty Company. "creative methods to combat challenges, and at the same time lift value, include increasing operating hours to counter fixed costs such as rent, shopping at wholesale outlets or even eliminating tips while raising prices."

Small Business Health Poised to Endure in 2016

The fact that 2015 transaction activity fell only slightly short of 2014's record high indicates that neither was an outlier. Even with many owners selling after the recession, a healthy amount of quality listings and qualified buyers still remain in the market.

As Baby Boomers continue to reach retirement age in significant numbers and more owners notice the higher sales prices their peers are receiving, supply will likely stay strong in 2016. In fact, the number of businesses listed in Q4 2015 also rose three percent over the prior year, compared to one percent growth in Q4 2014. At the same time, buyers are finding increased financing opportunities and will be more eager to purchase a business with consistently increasing financials, which data shows is happening nationwide. In fact, of businesses listed for sale in Q4 2015, both the median revenue and cash flow improved as compared to last year.

This is important to note for sellers as well because, not surprisingly, 2015 data shows that the higher financial performance an owner could demonstrate, the higher the value they could receive upon exit. Businesses with a cash flow under $100,000, for example, received a sale price multiple of cash flow around 1.97, while those in the $100,000 to $300,000 range received 2.28 times cash flow, and businesses showing between $300,000 and $500,000 received a 2.81 multiple. This emphasizes how important it is for small business owners to improve profitability as they move closer to listing their business for sale.

Price as Multiple of Cash Flow

Buyers and sellers entering the market this year should also keep an eye on current and upcoming issues such as the presidential election, rising health care costs, potential minimum wage hikes, and global market conditions, and determine how (if at all) these changes could affect their exit or acquisition strategies. In fact, in our recent survey of business brokers, respondents said they have already had clients sell their business due to rising health care and/or minimum wage costs.

"Overall, small business indicators continue to point toward a healthy market for buying and selling," House said. "While both sellers and buyers should keep their eye on the upcoming election and possible regulatory changes, it's unlikely either event would unhinge what has been an increasingly active business-for-sale environment. As small business financials improve and the market finds its balance, transaction activity should continue to be strong in 2016."

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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