The BizBuySell Insight Report is a nationally-recognized economic indicator that tracks the health of the U.S. small business economy. Each quarter, BizBuySell analyzes sales and listing prices of small businesses across the United States based on approximately 45,000 businesses for sale and those recently sold. The BizBuySell Insight Reports focus on over 70 major U.S. markets and publish local, regional, state and national data for trending and analysis.
An expert on small business issues, Group General Manager of BizBuySell.com and BizQuest.com, Curtis Kroeker, discusses the trends revealed by the Insight Reports in various media outlets.
Small Business Transactions Jumped 49% in 2013; Owners Receiving Higher Prices For Businesses, but Buyers Getting More for Their Buying Dollar, According to BizBuySell.com Report
Strong fourth quarter completes robust year in business-for-sale market; restaurant, retail industries see biggest gains in BizBuySell 2013 Insights Report.
BizBuySell.com the Internet’s largest business-for-sale marketplace, reported today that small business transactions grew 49 percent in 2013 compared to 2012. The full-year totals represent the first year of extreme improvement in the business-for-sale industry since levels reached record lows in mid-2009. The full results are included in BizBuySell.com’s 2013 Insights Report, which aggregates statistics from business-for-sale transactions reported by participating business brokers nationwide.
In 2013, 7,056 small business sales were reported by brokers to BizBuySell.com, a large spike over the 4,730 transactions reported in 2012. The improvement was led by exceptional growth in the restaurant and retail markets. Yearly restaurant transactions rose 78 percent in 2013 compared to 2012 and retail business sales grew by 71 percent.
The dramatic increase in 2013 small business sales can be attributed to multiple factors, including the improving economy, strong supply and demand fundamentals (i.e., an aging business owner demographic and an increase in the number of qualified business buyers) and continued improvement in small business financial performance.
The BizBuySell report reflected the improved business performance as the median revenue of small businesses sold rose 13 percent to $405,905 and median cash flow grew 9 percent to $97,000. Strong financial improvement, in turn, helped push the median sale price up 13 percent to $180,000 – great news for sellers. However, the fact that it is still a buyer’s market is revealed by the fact that the average revenue and cash flow multiples fell 1.7 percent and 3.0 percent, respectively, in 2013.
Sale price multiples are down slightly despite greatly increased transaction activity due to the fact that supply growth slightly outpaced demand. Demand growth in 2013 was strong as prospective buyers saw strengthening small business financials and economic activity. Additionally, improving personal wealth and a better lending environment translated into more qualified buyers with sufficient means to buy a business. However, supply growth was even stronger as Baby Boomers – who put retirement plans on hold during the recession – returned to the market confident that they could finally receive an appropriate sales price. Evidence of this appeared in a recent BizBuySell.com survey in which 50 percent of national business brokers surveyed estimated that more than half of the small business transactions in 2013 could be attributed to retiring Baby Boomers.
“This year was the year of recovery that everyone has been waiting for since the September 2008 Financial Crisis,” Curtis Kroeker, Group GM of BizBuySell.com and BizQuest.com, said. “After the onset of the Great Recession, transaction activity fell sharply until mid-2009 and then bumped along without meaningful growth. This created pent-up supply and demand that needed the right economic and capital conditions to materialize. In 2013, those conditions finally came together resulting in a large increase in business transactions and contributing to a healthier small business environment overall.”
Year Ends on Another Strong Quarter
In addition to full-year totals, BizBuySell.com reported a strong fourth quarter to end 2013. Total small business transactions increased 38 percent over the fourth quarter of 2012. This comes after 56 percent growth in Q1 of 2013, 62 percent in Q2 and 42 percent in Q3.
Fourth quarter financials of sold business were also up over the same period a year ago across the board. The median revenue of closed transactions grew 19 percent from $341,206 to $405,580, while the median cash flow increased 10 percent from $88,000 to $96,698. This allowed owners to ask for an average of $199,000 for their businesses and receive $175,000 on the sale price, up 5 and 4 percent from Q4 2012, respectively.
“It’s great to see strong transaction growth in all four quarters of 2013,” Kroeker added. “The sustained growth makes me optimistic that 2013 is not an outlier, but rather a return to a robust small business transaction market. The fact that sale price multiples plateaued over the course of 2013 after falling for several years also points to a brighter future.”
Optimistic Outlook for 2014
Overall, 2013 was a great stepping stone to what should be a healthy business transaction market for some time to come. The latent supply and demand created by the recession finally spilled onto the market and should continue to provide a strong buying and selling environment in 2014.
Seventy-six percent of business broker survey respondents expected even more Baby Boomers to sell their business in 2014 than did in 2013. If the economic recovery continues as anticipated, access to loans and personal wealth should both improve meaning that prospective buyers should be there to absorb the growing supply.
“While we certainly are not completely out of the woods, the business-for-sale market is trending in the right direction and should continue on this path in 2014 and beyond,” Kroeker said. “The Great Recession depressed sales activity for more than four years. So, while year-over-year percentage growth rates will almost certainly fall as we lap 2013’s robust activity, the absolute number of transactions should remain healthy. Simply put, the fundamentals are right for sustained transaction strength.”
APPENDIX: Additional Statistics from Small Business Transactions Reported to BizBuySell
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