How to Buy and Sell a Business
By Dennis Zink
Monday, May 6, 2019
BizBuySell.com, a company based in San Francisco, is the internet’s largest business-for-sale marketplace. It offers an online marketing platform to list and sell businesses. The site also features an extensive franchise directory as well as a business-valuation tool. If you are looking to Buy and Sell a Business, read on.
At any given time, BizBuySell.com lists over 45,000 businesses spanning 80 countries. BizBuySell’s Insight Report tracks the health of the U.S. small business economy. For sale and listing prices are tracked across 70 U.S. markets. This service provides a free shopping tool for prospective buyers, with a $50 fee for a base ad for three months to selling companies.
If you want to get an idea of what similar businesses in your industry are selling for, or perhaps you want to buy a business, the information includes listing and selling prices, the number of businesses sold and the median cash flow of those companies.
A summary of the Tampa-St. Petersburg-Clearwater market including the following counties: Hernando, Hillsborough, Pasco and Pinellas. For the first quarter of 2019 the median asking price for businesses for sale in this market on BizBuySell was $240,000 versus $220,000 in Q1 of 2018 for a 9 percent increase. These businesses had a median annual revenue of $444,942 up from $398,335 in Q1 last year for a 12 percent increase, and a median cash flow of $109,797 versus $100,000 last year for a 10 percent increase. Owners asked for, on average, a revenue multiple of 0.79 and a cash-flow multiple of 2.73.
Of the 1,041 companies listed by asking price, only 14 percent were listed for sale at $1 million or more. Just under half, (46%) were listed for sale at $200,000 or less.
BizBuySell analyzed 107 closed transactions during this period. Businesses sold for a median sale price of $345,000 in Q1 2019 versus $325,000 in Q1 2018 for a 6 percent increase. These businesses had median revenue of $622,657 up substantially (up $230,663) from Q1 2018 when it was only $391,994 a 59 percent increase. The median cash flow was $139,174 versus $128,791 up $10,383 or an 8 percent increase. Business buyers paid on average 0.72 times revenue and 2.58 times cash flow in Q1 2019.
The business with the highest multiple sold was at 3.01 for a website and internet commerce business. The lowest multiple was .11 for a local pack and ship retailer. The widest spread from asking price to sale price was a health-conscious restaurant natural foods cafe fetching 50 percent of the asking price.
The number of businesses for sale was up 2 percent; median asking price was up 9 percent; median revenue was up almost 12 percent; the average multiple of revenue was down .6 percent; the median cash flow was up almost 10 percent; and the multiple of cash flow was up 3.7 percent to 2.73.
Owners who can show improving financials will be better positioned to find interested buyers and gain more leverage in consummating a deal.
Total transactions decreased slightly and most industries followed suit. The retail industry saw a significant bounce after a slow Q4 2018. Total retail business transactions increased 25 percent compared to last quarter, but the increased transactions were accompanied by small declines in sale multiples and the sale-to-ask price ratio resulting in a drop in the median sale price from $229,000 to $187,000 quarter over quarter.
Restaurant transactions grew from Q4 2018. Unlike retail businesses, sale prices jumped from $152,500 to $180,000 quarter over quarter. Other good news in the restaurant category includes over a 10% increase in both median revenue and median cash flow for all listed businesses, showing that there are still quality restaurants available for purchase.
Bigger deals (over $1 million) received higher valuations with an average revenue multiple of .93 (compared to 0.58 for all deals) and an average cash flow multiple of 3.83 (compared to 2.33 for all deals). Here, size does matter.
Beyond a recession, other business concerns included talent shortages (17%), larger competitors (12%), and government regulations (12%).
According to BizBuySell, “A number of factors could be tempering the strong transaction growth rates seen in recent years. Most notably, these include the recent government shutdown, low unemployment, record profits, deal financing, and general uncertainty around the impact of administration policies relating to tariffs, immigration, and health care.”
Note to readers: SCORE Manasota has recently released its Exit Strategy Program. This select program provides a guide to exiting your business and realizing maximum equity. Whether you are looking to Buy and/or Sell a Business you need to request an Exit Strategy brochure so please write to me. Please note that not everyone is accepted into SCORE’s Exit Strategy program and there is an acceptance threshold for revenue and cash flow. If you need help, you may contact me at dennis@Time4Exit.com – As show host of SCORE Business TV we recently completed a series of episodes on Exiting and Buying a business, including Franchises. The link is https://manasota.score.org/resource/buying-business-score-business-tv