San Francisco, CA – BizBuySell.com, the Internet’s largest business-for-sale marketplace, reported today a record number of first quarter sold business transactions in early 2017. The full results are included in BizBuySell’s Q1 2017 Insight Report, which aggregates statistics from business-for-sale transactions reported by participating business brokers nationwide.
A total of 2,368 closed transactions were reported in the first quarter of 2017, a 29 percent increase from this time last year. Though the spike in small business transactions may be partly due to a rush of buyers and sellers looking to close deals around the New Year, a healthy economy, strong small business financials, and access to financing are also enticing more buyers and sellers to the market.
Businesses sold in Q1 grossed a median revenue of $518,159, a 8.4 percent increase from $478,000 in the first quarter of 2016. Median cash flow also increased, up 6.6 percent year-over-year to $117,275 from $110,000. These key financial indicators are the highest totals since BizBuySell first started tracking data in 2007.
In addition, the average multiple of cash flow, which remained flat over the past few quarters, increased 1.6 percent from 2.31 to 2.35. At the same time, the average multiple of revenue increased 2.5 percent from 0.59 to 0.61. These higher multiples emphasize how important it is for small business owners to improve profitability as they move closer to listing their business for sale.
“After a record-setting year of small business transactions, it’s great to see continued small business growth in early 2017,” said Bob House, president of BizBuySell.com and BizQuest.com. “Not only are more small businesses changing hands, but healthy financials are positioning these new owners for continued success. While the number of business transactions may stabilize throughout the remainder of the year, all signs point to a bright future for small businesses overall.”
High Sale Prices and Listing Numbers Points to a Balanced Market
The strong financials of businesses reported sold in the first quarter of 2017 resulted in owners receiving higher values for their business upon exiting. The median sale price increased nearly eight percent from $220,000 in the first quarter of 2016 to $237,000 in 2017 despite the median asking price remaining flat at $250,000.This puts the average sale-to-asking-price ratio at 0.92. The strong ratio indicates the market is becoming more balanced, with healthy financial figures bringing both parties closer together in their assessment of fair market value.
Over the past few quarters, the number of small businesses listed for sale has steadily increased. That trend carried over into 2017 as total listings increased 3.8 percent from last year. These newly-listed businesses boast growing median revenues and cash flows, suggesting there’s still a strong supply of healthy businesses available for interested buyers. Baby Boomers looking to capitalize on today’s favorable conditions and exit small business ownership for retirement are fueling the market supply. At the same time, younger buyers are finding attractive, healthier businesses for sale with greater access to lending, again pointing to a well-balanced market.
Looking into specific industries, the restaurant and retail sectors experienced the greatest growth. The number of closed transactions in the restaurant sector increased 29 percent year-over-year, and the median sale price jumped from $148,000 to $191,250. Higher sale prices were likely a result of improved financials. The median revenue of restaurants increased 33 percent from $432,000 to $574,679, while cash flows increased 23 percent to $105,029. Retail business transactions increased 28 percent, just shy of the growth recorded in the restaurant sector. When looking across geographic regions, the Midwest saw the most noticeable jump in key indicators. While total transactions were only up six percent year-over-year, the median revenue of closed businesses increased 43 percent from $500,000 to $715,463 and the median cash flow grew 49 percent from $101,614 to $151,664. These robust financials led to a 54 percent increase in the median sale price of Midwest businesses at $350,000.
Looking Ahead to the Rest of 2017
Overall, our first quarter data confirms that small business listings, financials, and transactions are continuing on a positive trend in 2017. Unsurprisingly, this trend mirrors the improving U.S. economy and stock market, which have surged over the last year. President Trump’s plans to reduce regulations and reform taxes are likely giving buyers and sellers more confidence in today’s market. In a recent BizBuySell survey, 47 percent of owners and 40 percent of buyers expressed approval for President Trump.
Still, buyers and sellers entering the market should keep an eye on changing federal and local policies and global market conditions that could impact the business-for-sale environment. According to the aforementioned survey, the issues small business buyers and owners said they’ll be watching most closely are healthcare, tax reform and jobs. While all fundamentals point to a stable and robust market, transaction levels for the remainder of the year will likely fall closer to last year’s record highs.
“While we anticipate transaction levels should stabilize over the next few months, all small business indicators point to a healthy market for buying and selling in 2017,” said House. “A strong supply of attractive listings and qualified buyers, and an administration looking to reduce costs for small businesses should fuel the market over the upcoming months.”