As we enter the second half of 2017, small business transactions are experiencing a record year.
Sellers are Receiving Higher Sale Prices and Closing Deals Faster
For business owners thinking about exiting their business, now is a good time to act. In the second quarter of 2017, BizBuySell reported a 31 percent increase in closed business for sale transactions compared to this time last year. Not only are deals closing faster, data also shows sellers are receiving higher sale prices for their businesses. The average small business is now selling for $229,000 after being on the market for 168 days compared to $199,000 after being on the market for 178 days in Q2 of last year.
Healthy Business Financials Allows for Higher Asking Prices
With the economy remaining stable and unemployment at a 16 year low, today's small businesses are prospering. Businesses sold in the second quarter of 2017 reported an 11 percent increase in median revenue compared to the same time last year. Improved financials allowed sellers to demand higher asking prices, and the average multiple of cash flow increased 5.1 percent year-over-year as well. Yet, buyer and seller perception regarding pricing remains in sync, as the average sale price to asking price ratio remained flat in the second quarter of 2017 at 0.92.
Buyers Benefit from a Larger and Better Selection of Available Businesses
As more baby boomers are retiring and seeking to exit their business, business for sale listings are on the rise, giving buyers a wider selection to choose from. In the second quarter of 2017, the number of businesses listed for sale on BizBuySell grew 13% percent year over year. With more businesses available for purchase offering strong financials, it's proving to be an attractive market for buyers as well.
Buyers can also get more value for their dollar than in the past. This is due to sales multiples which have remained relatively flat since the Great Recession. In the second quarter of 2017 the average multiple of revenue for sold businesses was .62 and the average multiple of cash flow was 2.34. This cash flow multiple is approximately 16 percent lower than the average multiple reported just prior to the Great Recession. In short, buyers today are getting more cash flow for their investment dollar than they did a decade ago before the recession.
More Restaurants are Changing Hands While Franchises are Strong Revenue Drivers
Restaurants businesses experienced the largest jump in sales in the second quarter of 2017, with a 34 percent increase in closed business for sale transactions. Plus, the median sale price for restaurants jumped from $165,000 to $195,000 demonstrating strong demand. At the same time, established franchises stood out with higher revenues than all businesses in aggregate, with median revenue at $609,996 compared to $490,000 for all businesses. Even with royalties, franchises are an attractive investment with additional revenue and marketing benefits.
As we move into the back end of 2017, these market trends show that there are deals to be had for both small business buyers and sellers. Seller activity is delivering a strong inventory of healthy businesses to the market, while buyer demand remains strong.