A report by online marketplace BizBuySell.com states that first quarter transactions in the U.S. rose by 2% in the first quarter of 2011, compared with last year’s numbers. A modest recovery is expected as a result of this good news. Read more about this in the full article by Blue MauMau.
Small business entrepreneurs are beginning to push out of their cocoon when it comes to selling their companies. Owners of restaurants, gas stations, dry cleaners, convenience stores, franchised and other small businesses are selling their establishments a bit more in the first quarter of 2011 compared to the delayed recessionary lows of 2009 and 2010. According to BizBuySell.com, an online marketplace that lists tens of thousands of businesses for sale in a given month, the number of reported closed business-for-sale transactions in the United States through their site rose by two percent, from 1,149 transactions in the first quarter of 2010 compared to 1,172 in the same period last year.
"We’ve been predicting for quite some time that the business-for-sale market would improve as more financing becomes available to buyers," said Mike Handelsman, Group General Manager, BizBuySell.com and BizQuest.com. "While the market is not picking up as quickly as some would like, we expect a modest recovery to continue throughout 2011."
The median sale price for closed business transactions was up from $150,000 in the First Quarter of 2010 to $155,000 in the First Quarter of 2011, an increase of 3.3 percent. The median sales price for last quarter represents a recovery to a level not seen since the Second Quarter of 2010, but is still much lower than the quarterly median sales levels reported in 2009, which peaked at $180,000.
"We seem to have hit the bottom in terms of sale price, as pricing has leveled out over the past several quarters, and is even up slightly relative to what it was a year ago," Handelsman noted.
Sales of Franchised Establishments
What about owners of franchised businesses? Have they been hunkering down, awaiting the commercial sales bust to turn up again?
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Jeff Elgin, CEO of Minnesota-based FranChoice, thinks so.
"I suspect that this resale activity will become much stronger as the sellers get another year of recovering results that they can show to prospective buyers, but right now it is definitely a buyer’s market," declares the CEO of one of the industry’s largest networks of brokers that sell franchises. Elgin adds, "The lack of financing options isn’t as bad for resales as it is for new startups because of recovering cash flows and owner financing becoming fairly prevalent. I suspect when the financing marketplace comes back to something approaching a reasonable market for availability you’ll see more activity and better multiples on the sale prices of existing franchises."
Jania Bailey, president of competing FranNet and a former commercial lender, agrees that financing has been a major issue for the higher cost franchises both in new sales and resales. "We are beginning to see some improvement in the credit arena, but this remains a major issue and we expect it to continue for some time," states Bailey. But she adds that franchise sales have been good for FranNet. "We have just finished our fourth record year in a row," she states. She points out that the majority of the franchises that her brokers sell for franchisor clients are lower priced, less than $250,000 in total investment.
Elgin thinks it is currently no bed of roses for entrepreneurs who want to sell their small business in the current environment. "Any smart seller with recovering cash flows would probably be well advised to wait a while in order to get a better sales price, assuming they have the option to do so," advises Elgin.
Stronger Financials for Small Businesses that Are Selling
The financials for those selling their small businesses are improving. BizBuySell.com reports that the median revenue for businesses sold has increased 8.1 percent from $320,000 to $346,000, while median cash flow increased 5.2 percent from $80,000 to $84,175. It is the first quarter in at least a year where both median revenue and median cash flow of sold businesses were up versus the prior year.
According to Handelsman, these significant increases demonstrate that struggling businesses are finally stabilizing their revenues and recovering from profit declines experienced during the recession. "You can’t sell a business that’s in distress, but these positive changes suggest that small businesses are becoming healthy again, and many more business owners may now be able to address the opportunity to exit."
BizBuySell.com projects that these positive changes in the business-for-sale market will continue through the year. The increases in median revenue and cash flow suggest that businesses looking to sell are getting healthier, allowing many business owners to exit their businesses. In addition, as lending institutions ease their restrictions, capital will become more readily available, expanding the base of qualified business buyers and making it easier for brokers and business owners to close sales.
This article was republished with permission from Blue MauMau.