For a few years now, the small business-for-sale market has been riding a wave of improving financial performance and transaction totals. This is good news, given how many owners remained hesitant about listing their business in the years since the Great Recession. However, the most recent uptick in small business listings suggests more owners are feeling confident in the market.
Number of For-Sale Listings on the Rise
Data from BizBuySell.com’s recent Q2 2015 Insights report found that the number of small businesses listed for-sale grew more than 12 percent from the same time last year, reaching levels not seen since 2009. The increase in listings this quarter correlates to a number of factors, including growing small business financial performance and sale prices, and the volume of Baby Boomers reaching retirement age.
The increasing number of owners deciding to sell comes as revenue and cash flow are rising, which allows sellers to get closer to their desired asking prices. The median small business asking price grew 13 percent in the past year, while the median sale price increased 12 percent.
Other key findings from the first quarter included:
- Strong small business financials allow sellers to ask for more. The median revenue of sold businesses increased to $450,000 this quarter (the highest on record since the report’s inception in 2007), and the median cash flow rose slightly to 102,995 from $100,000 at the same time last year. Improving financials give owners the leverage to sell their businesses for more. The median sale price of a business in Q2 remained at $200,000, the same as in the first quarter and still the highest mark since mid-2008.
- Restaurant and manufacturing businesses are fueling the growth. The number of listings in the restaurant sector increased 12 percent from this time last year. However, its manufacturing businesses that are leading the recent uptick with a 29 percent increase year-over-year supply growth. Sold restaurant financials kept pace with the improving health of small businesses around the country. The median revenue of sold restaurant businesses hit $500,000 in Q2, the highest mark since BizBuySell started tracking this data in 2007. The median asking price for restaurants in Q2 was $184,000 and the median sale price grew to $152,500, its highest level in eight years.
- Regionally, New York and California are among areas with highest boost in supply. Albany, New York led the top MSAs (Metropolitan Statistical Area) with a near 200 percent increase in for-sale businesses compared to last year. New York City also fit into the top 10 growth regions, experiencing a 29 percent growth in listings from Q2 2014. San Jose (up 64 percent), Sacramento (up 42 percent) and San Francisco (up 31 percent) were all among the leading California cities for Q2 listing growth compared to last year. Other notable cities with more small businesses on the market include Kansas City (up 34 percent), Minneapolis (up 29 percent), Dallas (up 23 percent), Seattle (up 22 percent), Washington D.C. (up 16 percent) and Denver (up 16 percent).
Advice for Small Business Owners
An increase in business for-sale listings indicates that more owners are deciding now is a good time to sell, but a recent survey of business owners found that many are not prepared for the realities of the sales process. Many owners have unrealistic expectations when it comes to price, seller-financing and how long the sales process lasts. Before listing, sellers should research the market in their region and give themselves plenty of time to prepare their business for sale. A business broker or appraiser can help determine an accurate valuation.
In general, the fundamentals from the first half of 2015 signal a more balanced business-for-sale market that benefits both buyers and sellers. Robust financials are helping sellers attract more qualified buyers, well at the same time, sellers looking to move on to their next chapter are starting to feel more confident that they can successfully exit their business. All these indicators suggest a strong business-for-sale market to come in the second half of the year.