The median selling price for small Orange County businesses was $175,000 in the second quarter, up 11.1% from a year ago, according to BizBuySell, the largest U.S. businesses-
for-sale Web site.
That compares to the $485,000 median selling price for Orange County homes, according to the latest DataQuick numbers.
The median asking price for local businesses in the second quarter was $222,450, which was 11.2% ahead of a year ago, based on listings on the Web site.
Businesses that actually sold brought .73 times the businesses’ annual revenue and 3.14 times cash flow, which are numbers sellers often consider when trying to set their asking price.
Nationally, the median selling price was $200,000 and median asking price was $255,000, according to BizBuySell records of 2,100 transactions.
“Given the troubled economy, you may be surprised to hear us report that business-for-sale valuations are rising,” said BizBuySell General manager Mike Handelsman. “Nonetheless, it’s consistent with what we are seeing in the market.”
Valuations are being propped up by two factors, he said. Many individuals who have been laid off are in the market to buy a business rather than find a job in a weak economy. At the same time, fewer businesses are being put on the block.
The businesses that are selling are larger businesses with predictable future cash flows and revenues, which can still command premium prices, Handelsman said.
So businesses on the lower end of the valuation spectrum are pulling out of the market, he said. Owners of smaller firms believe valuations are down and are deciding to wait to sell. Since their equity in the business is a large component of their retirement nestegg, they do not want to sell at a discount.
Here is a breakdown of Orange County businesses for sale on BizBuySell by asking price:
Among the Orange County businesses that sold on BizBuySell from April through June are:
- A hamburger restaurant sold for $300,000 (asking price was $350,000)
- Beauty salon/spa sold for $235,000 (which was also the asking price)
- Internet-based video games seller sold for $1 million (same as asking price)
- Furniture retailer sold for $45,000 (same as asking price)
- Florist sold for $40,000 (asking price was $89,000)
- Auto repair franchise sold for $150,000 (asking price was $300,000)
- Specialty advertising agency sold for $185,000 (asking price was $195,000).
OTHER STORIES:
- Number of O.C. businesses sold dropped 22.6% in first half of ‘08
- Report of Entrepreneur Media for sale untrue, owner says
- 50% of business sales fall through
- What is your business really worth?
- Soaring energy costs hit small businesses hardest
Is buying a business a better investment than buying a home?
Ask yourself this; how much money does owning a home provide me with each month?
Home ownership is a long term investment or way to save but very expensive indeed. You will be paying for 15, 20 or even 30 years to pay it off in most cases.
If you took $65,000 as a down payment and financed the the balance on the purchase of a $225,000 business plus some working capital approximately how much would be left to put in your pocket the first year. Approximately $45,650 based on a 10 year 8.5% (current rate) SBA guaranteed loan. So you would have your cash back in about 18 months and your total investment back in less than 5 years at that rate.
Your business actually pays for itself. Does your home pay for itself?
Sites like BizBuySell don’t provide a very accurate picture of the numbers since they depend entirely on business brokers volunteering their information. So who can you trust for this information? Certainly the International Association of Business Brokers (IBBA) or the California Association of Business Brokers (CABB) may be able to provide more accurate information.
As a business broker I rely on Business Brokerage Press’ Online Business Reference Guide, BizComps and Pratt’s Stats or even relatively new to the business DealTrax.
All of that aside as a buyer you can get help from a professional business broker to adheres to the Code of Ethics of IBBA or CABB. You’ve got to be a bit careful here since there are a lot of people in the business brokerage profession but not so many professionals. Ask a lot of questions, if your business broker can give you details on specific industries without stopping to research or hesitation they are probably a good source of information.
Ask a lot of questions before you buy!
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