BizBuySell's Second Quarter 2016 Insight Report shows market stabilizing at high activity levels; median time to market a business is about 6 months.
San Francisco, CA - BizBuySell.com, the Internet's largest business-for-sale marketplace, reported today that the total number of small businesses changing hands in the first half of 2016 represents an increase from not only last year, but from the record-setting 2014 as well. The full results are included in BizBuySell's Q2 2016 Insight Report, which aggregates statistics from business-for-sale transactions reported by participating business brokers nationwide.
A total of 1,935 closed transactions were reported in the second quarter of 2016, bringing the year-to-date total to 3,775, a slight improvement from the 3,743 reported in the first half of 2015. If this pace holds up, 2016 is also on track to surpass 2014, when BizBuySell reported a record 3,755 transactions in the first half of that year.
Key financials of those businesses sold in 2016 remain on par with those reported sold in 2015. The median revenue of sold businesses in Q2 2016 was $441,331, a 2 percent drop from the same period last year, while the median cash flow grew 2 percent, from $102,995 in Q2 2015 to $105,000 in Q2 2016. Consistent financials led to a median sale price of $199,000, nearly identical to the $200,000 2015 mid-year level.
"The fact that small business financials have remained stable and transactions continue to grow speaks to the strong number of buyers and sellers entering today's market," said Bob House, President of BizBuySell.com and BizQuest.com. "Despite the many deals already completed over the past few years, there still appears to be a strong supply of listings, driven by retiring Baby Boomers, and at the same time, qualified buyers with access to capital."
Time Small Businesses Are On Market Sits Just Below 6 Months
Small businesses sold in Q2 2016 reported a median of 178 days on market, a slight improvement from the 188 days in the previous quarter but an 8% increase from the prior year of 163 days. This puts the average time to market a small business at approximately 6 months. In addition, experts suggest sellers spend a minimum of 6 months preparing their business for sale in advance of listing it. This includes preparing 2 to 3 years of financials, optimizing operational efficiencies and improving the appearance of the business. This process helps sellers achieve the highest possible return.
Furthermore, it's no coincidence that a large number of transactions typically occur in the 2nd quarter of the year, as the 6-month metric shows these owners likely listed their business for sale just after the new year. This is often when sellers act to initiate financial plans that were considered the prior year, including the decision to engage in a lifestyle changes. These lifestyle changes primarily include retirement and burnout, as reported in BizBuySell's recent study, The Demographics of U.S. Small Business Buyers & Sellers.
"The timing of a small business sale is an especially tricky topic as there are certainly variables that can slow or speed the process," House said. "Using this data as a benchmark however, sellers should expect it to take about 1 year from the decision to sell to the point where they actually find a buyer for their business. This provides sufficient time for preparation, marketing and securing a buyer."
As Asking Prices Have Risen, Time On Market Has Increased
Looking at the bigger picture of small business sale timelines, it appears that while sale prices have increased over the last six quarters, the sales cycle has lengthened. Whether this is correlation, causation, or coincidence is not clear, but it is interesting and worth noting for sellers.
The time to sell a small business coming out the recession peaked at over 200 days in 2012. As economic conditions improved, that number slowly declined as both buyers and sellers were likely eager to move after waiting out the recession. After 10 straight quarters of faster sales cycles, the time to sell started increasing in Q4 2014, just after the median asking prices began to increase. In fact, after sitting at $200,000 in Q3 of 2014, the median asking price of sold business gradually increased to a high point of $249,500 last quarter. Simultaneously, the median time on market rose from a low of 154 days in Q4 2014 to 188 days last quarter.
Remainder of 2016 Remains Good Time To Buy or Sell, Election Among Key Issues To Watch
In addition to the growing transaction numbers and stable financials, the multiples today's owners receive for their business remains strong. The average revenue multiple remained almost identical to last year at 0.61 and the average cash flow multiple was 2.26, just slightly down from 2.22 in 2015. The minimal year-over-year variations point to a stable market.
As we move closer to the fall, the Presidential election will no doubt be on many small business owners' minds. The winner's small business policies will shape the future of SMB regulations and could cause a shift in the number of owners looking to either sell or hold on to their business. For those business owners with overseas reach, the effect of "Brexit" and the ensuing regulation changes is another issue owners should consider while determining their future plans.
"While we've seen few significant fluctuations in the business-for-sale market over the past few years, the election could certainly change that in late 2016" House added. "Many people could be motivated to either enter or exit small business ownership based on their view of the winner's future policies. It's something we will be watching closing in our second half Insight reports."
About the BizBuySell.com Insight Report
BizBuySell.com is the Internet's largest marketplace for buying or selling a small business, with over 1.4 millionmonthly 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 www.bizbuysell.com/business-brokers.
NOTE: For additional statistics, please see the latest BizBuySell Insights Report
Walker Sands Communications
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 48,000 businesses - spanning 80 countries - for sale at any one time and receives more than 1 million 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.