June 3, 2019
If you want to get an idea of what similar businesses in your industry are currently selling for, or perhaps you want to buy a business, then Business Buy Sell will help inform you.
The URL, BizBuySell.com, is based in San Francisco. They offer an online marketing platform to list and sell businesses. At any given time, BizBuySell lists approximately 45,000 businesses spanning 80 countries. This service provides a free shopping tool for prospective buyers, with a $50 fee for a base ad for three months to the listing or selling company.
The information includes listing and selling prices, the number of businesses sold and the median cash flow of those companies. The local data is derived from almost 1,000 companies.
They have about 1.6 million eyeballs a month looking at their site. Nationally, they are seeing the most businesses listed since they started collecting this data. Baby boomers are driving a large percentage of these listings. Post retirement CEO’s want to keep busy and earn additional income. Prospective buyers can set up alerts to email them when a business of interest is placed on the system.
The Tampa-area Insight Report
BizBuySell’s Tampa-area Insight Report for the second Quarter of 2016 offers several interesting insights.
Small-business transactions in the first half of 2016 are up slightly from last year. So how does the Tampa area stack up against the rest of the country’s listing numbers and key financial indicators?
National asking prices have risen while the time on market has lengthened.
Here are some of the highlights for the businesses listed in the Tampa area.
If you want to buy a business in Tampa, the median asking price at the beginning of 2016 was $199,900. Ten years ago (2007), the median ask was only 5 percent less, at $189,000, so asking prices have not changed very much over this period. At the same time, revenue has increased 37 percent and cash flow multiples decreased 9 percent over the decade. These companies are doing substantially more business today, yet they are selling for less than they did a decade ago.
Tampa business listings in 2016 had a median annual revenue of $395,828, up from $351,304 last year. This is an increase of 12.6 percent.
The median cash flow, or the money that comes out of the business over the course of a year, was $101,040, versus a median cash flow of $87,538 in 2015. Profits were up 15.4 percent.
Year-over-year net profit margins were flat, at 25 percent.
Selling multiples were typically between two times to three times cash flow. A business generating $100,000 in cash flow would likely be sold in a range of $200,000 (two times) to $300,000 (three times).
Owner asking prices, on average, equated to a revenue multiple of 80 percent and a cash-flow multiple of 2.72. In the median example above, this equates to an asking price of $316,662 (revenue multiplier of .80) to $274,829 (cash flow multiplier of 2.72).
Of the 62 businesses that sold in this period (second quarter 2016), businesses sold for 94 percent of the asking price. These businesses had a median revenue of $317,234 and cash flow of $80,302, with 25 percent profit margins. Buyers paid, on average, .55 times revenue and 1.81 times cash flow. Cash flow multiples decreased 7 percent from 2015 to 2016, from 1.95 to 1.81.
Multiples of cash flow for active listings ranged from 2.03 for restaurants to 3.71 for manufacturing businesses. The median asking price for restaurants was $175,000, based on median annual sales of $409,422.
On closed transactions, cash-flow multiples ranged from a low of .84 times for a restaurant to a high of five times for a bar/tavern.
Last year, only 6 percent of the closed, sold transactions fetched $1 million. This year, 11 percent topped the $1 million mark in asking price but were not yet sold. Only 49 percent of the listed businesses were asking over $200,000.
Rules of thumb are dumb, sometimes
Generally speaking, multiples of revenue are meaningless. A business is not worth anything if it isn’t profitable. There is no talent or sustainability in losing money in a business. Anyone can start a losing business. Multiples of cash flow is the key metric.
Owner benefits should be added back into the cash flow. These are expenses that benefit the owner of the business and would not necessarily be paid by a new owner. Expenses could include the owner’s car, gas and maintenance, travel-and entertainment expenses and club membership fees. These expense items are recast (added back) in the balance sheet and will improve cash flow numbers.
To realize the equity in your business, it is never too early to think about your exit strategy. A business owner needs to start putting an exit plan together when they start their business.
If I may be of service to you, please contact me at dennis@Time4Exit.com