How much is your business worth?
Just like the housing market, businesses are regularly bought and sold. While each sale is different, there are just as many reasons why owners decide to sell their businesses, as there are reasons why buyers decide to buy a business. The big question is, how do you know how much a business is worth.
BizBuySell.com is the internet’s largest business-for-sale marketplace and publishes a report of business sales on a quarterly basis. The volume and diversity of businesses sold through this website can provide a great tool for evaluating the value of your business.
Businesses are listed according to the business type, asking price, revenue, cash flow. Based on the each of the base numbers, a mathematical formula is used to determine how many times above the revenue and cash flow (in terms of percent) that the business is valued at the current asking price.
According to the latest report, a record number of 2,589 businesses changed hands nationwide in the 3rd quarter of 2017, topping the two previous quarter records. Healthier small businesses, according to median revenue ($507,865 increased 11.2 percent over Q3 2016) and cash flow numbers ($1193,071 jumped 6.9 percent over Q3 2016) are “likely” leading to more closed deals.
In addition to the increased number of closings, the median number of days on the market has dropped from a high of 188 days during Q1 2016, down to 145 days by the end of Q3 2017.
Currently, according to the latest BizBuySell report, there are 434 businesses for sale in Clark County with a median asking price of $190,000, a median revenue of $391,000, and median cash flow of $101,181. When you look at the average asking price, you will see that the business owners are asking for a dollar figure that is 0.67 times the average multiple of revenues, and 2.37 times the average multiple of cash flow.
However, there are a lot of variables in those median numbers, and the following chart breaks them down by industry.
To get a better idea of how those 434 businesses are priced, the following chart breaks down the numbers by pricing category.
As far as businesses sold, there were 39 deals closed during Q3 2017 in Clark County. Both the median sale and asking prices are valued at $150,000, but as you will see from the following chart, that number is quite skewed by the sale of a medical group for $7,000,000 ($1,000,000 over the asking price).
Other notable sales included an auto body and paint shop for $850,000; two national franchise children’s clothing stores selling for $520,000 and $494,000 each; and a Mexican restaurant with ten slot machines for $399,000.
The Amazon Effect
Whether buying or selling a business, the “Amazon Effect” cannot be ignored. As discussed in an earlier newsletter, online retailers, especially e-commerce giants like Amazon, are having an impact on traditional brick-and-mortar stores. A recent BizBuySell study of small business owners found 65 percent perceive Amazon as a threat.
In terms of business health, the median revenue of retail businesses sold in Q3 2017 fell 7.1 percent year-over-year, from $573,921 to $533,179. By comparison, the restaurant industry saw a 22.2 percent increase in the same category. The cash flow of retail businesses also declined, falling 11.2 percent year-over-year, while restaurant cash flow increased 8.7 percent. Given the opposite direction in which these two sectors are heading, it’s no surprise that the median sale prices of retail businesses declined 12.5 percent YOY during the 3rd quarter, while the restaurant sector increased 9.1 percent.
However, a signal that retail is down but not out, the number of retail transactions jumped 23 percent in Q3 compared to the same time last year.
Selling or buying, or just holding on
Whether you are contemplating selling your small business, or buying a business, or even if you are just comparing your business to others as a predictor of the future, keeping an eye on business sales trends could be a great indicator.
As it looks now, barring any unforeseen events, the last quarter of 2017 should cap a healthy year of small business growth nationally. Newly-listed businesses boast growing median revenues and cash flows, suggesting there’s still a strong supply of healthy businesses available for purchase. An even better indicator, the number of businesses listed for sale continues to rise while being met with strong buyer demand.
If you need assistance in analyzing the net worth of a business that you wish to buy or determining the value of your business for a sale, call Business Finance Corporation and let our experts assist you in the process.
Your Partner in Success,