San Francisco, CA – BizBuySell.com, the Internet’s largest business-for-sale marketplace, reported today that the median revenue and median cash flow of sold small businesses in the first quarter of 2016 reached their highest levels since BizBuySell first started tracking data in 2007. This is notable as the increased financials are resulting in higher sale prices for small businesses. The full results are included in BizBuySell’s Q1 2016 Insight Report, which aggregates statistics from business-for-sale transactions reported by participating business brokers nationwide.
A total of 1,840 closed transactions were reported in the first quarter of 2016, a slight increase from the 1,830 transactions in the first quarter of 2015, however the businesses that sold this quarter appear to be much healthier. Businesses sold in the first quarter of 2016 grossed a median revenue of $478,000 compared to $442,000 last year, and a median cash flow of $110,000 compared to $104,000. These figures represent the highest median revenue and median cash flow of sold businesses on record at BizBuySell.
The improving financials are allowing sellers to ask for and receive more during the sales process. The median small business asking price grew 11 percent in the past year to $249,500, while the median sale price increased 10 percent year-over-year from $200,000 to $220,000. That marks a healthy average sale to asking price ratio of 90 percent. The increase in sale price is a great sign for sellers as it suggests the market may be shifting in their favor.
Supply of Small Business Listings Reaches Seven Year High
As business financials strengthen and sale prices grow accordingly, it appears more owners are deciding now is a good time to sell. The number of businesses listed for-sale grew more than 6.4 percent from the same time last year. The Q1 2016 listings total marks the highest number of businesses listed for sale on BizBuySell since the first quarter of 2009, after which both listings and sales dropped significantly in response to the economic downturn. The uptick in small business listings this quarter is likely due to a number of factors, including growing small business financial performance and resulting sales prices, as well as the increasing number of Baby Boomers reaching retirement age.
Similar to those sold in Q1, listed businesses appear to be financially healthy. The median revenue of listed businesses in Q1 increased 4 percent from this time last year to $468,000, while the median cash flow rose 3.8 percent to $106,736. Despite improving financials, however, the median asking price remained the same, suggesting there is still a good value opportunity for potential buyers.
“While we’ve seen the number of small business transactions stabilize in the past few quarters, it’s good to see the financial performance of small businesses continue to improve early in 2016,” Bob House, Group GM of BizBuySell.com and BizQuest.com, said. “The growth in listing supply shows that small business owners are feeling more confident in the market. As business financials strengthen, and sellers continue to receive strong returns, we expect to see an active, balanced market in the upcoming quarters.”
Service and Retail Financials Climb, While Restaurants See A Decline
Both the service and retail industries appear to be keeping pace with the improving health of small businesses around the country. The median revenue of businesses sold in the service industry jumped from $322,686 in Q1 2015 to $375,720 in Q1 2016. The median cash flow also increased from $104,000 to $114,370 during that same period. Those increased financials allowed sellers to both ask for and receive more for their service businesses. The median asking price grew 19 percent to $260,000, while the median sale price jumped from $190,800 in the first quarter of 2015 to $226,000 in the same period of 2016.
Similarly, the financials of sold retail businesses continued on a positive trend. The median revenue of retail businesses rose from $537,500 in Q1 of 2015 to $551,052 in Q1 of 2016 and the median cash flow of sold retail businesses increased from $99,355 to $103,227. However, the median sale price only experienced a slight bump from $197,250 to $199,000.
The restaurant industry, on the other hand, experienced a slight decline in performance this quarter. The median revenue of sold restaurants decreased from $475,225 in the first quarter of 2015 to $432,000 in the first quarter of 2016, and the median cash flow also slipped in that time from $95,500 to $80,500. At the same time, the median asking price slid 10 percent to $159,000 and the median sale price decreased from $149,500 to $148,000. While this dip in financial performance shouldn’t be seen as a seismic threat, it may hint at how increased labor, healthcare and operating costs are affecting the industry. This industry in particular is keeping a very close eye on changing local and national regulations impacting minimum wage rates and health insurance requirements.
“Overall this quarter’s data confirms that small business listings, transactions and financials are all continuing on a positive trend to start the year,” said House. “Historically the second quarter of the year has been one of our most active so we expect transactions to continue at a high pace as more buyers step up to take on the growing supply of financially strong listings. In short, all the fundamentals point to a continued strong spring and summer in the business-for-sale market”