Many business brokers are reporting a record level of buyer interest, but limited access to capital and uncertainty about the future have proven to be major barriers in deals getting off the ground and closed.
San Francisco, CA (PRWEB) April 7, 2009
BizBuySell.com, the Internet's largest marketplace for buying or selling a small business, today released economic data for the first quarter of 2009 that suggests the struggling economy has continued to negatively impact small business-for-sale transactions and valuations.
According to the BizBuySell.com First Quarter 2009 Insight Report, the number of closed transactions reported to the site in the first quarter of this year decreased by 36% as compared to the same time period in 2008. Closed transactions are reported to BizBuySell.com by business brokers nationwide.
As the U.S. stock market and the overall economy have worsened in the last quarter, so has the small business marketplace. BizBuySell.com's fourth quarter 2008 data reported a 20% year-over-year decrease in closed transactions, indicating that even fewer deals have been getting done in the first months of 2009.
"It's not surprising that the number of closed small business transactions continues to decrease," says Mike Handelsman, General Manager of BizBuySell.com. "Many business brokers are reporting a record level of buyer interest, but limited access to capital and uncertainty about the future have proven to be major barriers in deals getting off the ground and closed."
-- Popular Business Valuation Metrics Are Down --
In addition to fewer completed deals, BizBuySell.com notes a decline in the metrics that are used to value companies. Compared to the same quarter in 2008, both revenue multiples and cash flow multiples have declined.
Revenue multiples on reported closed transactions dropped 5.5% to .69 in the first quarter of 2009. Similarly, cash flow multiples dropped to 2.69, representing a 3.8% decrease. The revenue and cash flow multiples are calculated by dividing the selling price of the business by its reported annual revenue or cash flow.
The median sales price for closed transactions also declined year-over-year, from $200,000 to $165,500 - a 17.3% decrease.
"Even though record levels of corporate layoffs have created tens of thousands of hopeful entrepreneurs, the decreasing sales prices and revenue and cash flow multiples make it clear that buyers are approaching deals with more caution than ever," says Handelsman. "Buyers are wary of paying sellers' typical asking prices because they don't feel confident that the businesses will be able to survive down the line."
-- Key Takeaways for Business Sellers and Buyers --
The current market presents a unique set of opportunities and considerations for business buyers and sellers. BizBuySell.com suggests that buyers and sellers pay close attention to the following:
- Emphasize seller financing -- Individuals interested in buying a business are facing more limited access to SBA-backed loans, as well as savings and retirement accounts that have taken deep hits from stock market declines. As such, seller financing has become essential to close a deal in today's challenging environment. A seller's willingness to finance at least part of the sale could be the deciding factor in getting potential buyers to take notice and have the mindset to seriously pursue a deal. BizBuySell.com recently introduced a feature that allows sellers to clearly indicate they will offer seller financing when listing a business for sale. In addition, buyers can now search the site specifically for seller-financed businesses by location or industry. Since the launch of this feature, 21% of all business sellers on the site have flagged their listings as offering seller financing, and those who offer it have seen, on average, 50 to 70% more activity from interested buyers.
- Preparation is key -- While many small business transactions have stalled, or failed to find serious buyer activity, there are still deals getting done. Successful transactions involve buyers and sellers who have done their homework and taken all the necessary steps to prepare for the transaction. Sellers can market their businesses more effectively by making sure that they are in the best possible shape before listing them for sale, and emphasizing the specific positive elements about their businesses in their online listings. Buyers can work with experienced business brokers to ensure they have set realistic goals and are covering all bases. Both buyers and sellers can use the new BizBuySell Small Business Community Network to ask questions and receive valuable insight from experts.
- If you're serious about selling, don't wait -- Business owners who have a need or very strong desire to sell should not hesitate with the hope that better times are right around the corner. While BizBuySell.com expects market conditions to slowly improve, there's no guarantee the economy will get better in the very near future.
The BizBuySell.com First Quarter 2009 Insight Report includes business-for-sale metrics for the total U.S. and for more than 70 major metropolitan areas. Metrics are also available by industry and business type. The current Insight Report comprises data from 1,146 closed transactions and more than 27,500 active listings.
For more information on the BizBuySell.com First Quarter 2009 Insight Report, visit http://www.bizbuysell.com/news/media_insight.html.
BizBuySell is the Internet's largest and most heavily trafficked business for sale marketplace, with more business for sale listings, more unique users, and more search activity than any other service. BizBuySell currently has an inventory of over 50,000 businesses for sale, and more than 750,000 monthly visits. BizBuySell also has one of the largest databases of sale comparables for recently sold businesses and one of the industry's leading franchise directories.
BizBuySell was founded in 1996 and acquired in 2004 by LoopNet, Inc. LoopNet operates the leading online marketplace for commercial real estate, with more than $515 billion of property listed for sale and 5.2 billion square feet of space for lease. With 890,000 monthly unique visitors according to comScore Media Metrix, LoopNet generates 5.5 times the traffic of any other commercial real estate listing web site. For more information, visit http://www.bizbuysell.com.