For about two years now, it's been a buyer's market for small companies. But finally entrepreneurs looking to cash out could be getting some relief.
That's because sales-price multiples--that is, the ratio of selling price to cash-flow--have been inching up in 2013. While the cash flow multiple remains below pre-recession levels, its recovery indicates that the pendulum is starting to swing back toward a more balanced market.
Why the increase in value? The overall financial health of small companies also rose in the second quarter of 2013, according to BizBuySell's Second Quarter Insight Report. According to the data, the median revenue for sold businesses was up 9.4 percent, compared to the like period in 2012. And the median cash flow of sold businesses was 7.5 percent from 2012. These improving financials that are giving business owners more leverage during the sales process.
Several other economic factors are helping sellers, as well. First, many potential business buyers are seeing their personal wealth recover in the form of improving stock portfolios and home values. This provides both the confidence and the cash to come up with down payments. In addition, buyers are finally better able to fund the remainder of the purchase thanks to easier access to capital. Not only are banks slowly starting to lend more, but more sellers are offering financing themselves.
Overall, small business owners are becoming more confident in the attractiveness of their businesses as key financials continue to improve. At the same time, these strong financials are making buyers more confident they’re purchasing a growing and healthy business that’s sustainable over time--making it a true win-win for both sides of the deal. For both buyers and sellers, now is a great time to go to market.