Small Businesses Selling Well in 2011 Q1

SAN FRANCISCO -- The number of reported closed business-for-sale transactions in the United States rose by 2 percent, from 1,149 transactions in the first quarter of 2010 to 1,172 in the first quarter of this year, according to BizBuySell.com, the Internet's largest marketplace for buying and selling a small business.

"We've been predicting for quite some time that the business-for-sale market would improve as more financing becomes available to buyers," said Mike Handelsman, group general manager, BizBuySell.com and BizQuest.com. "While the market is not picking up as quickly as some would like, we expect a modest recovery to continue throughout 2011."

BizBuySell.com reported positive changes in the metrics that are used to value companies. Median revenue for businesses sold increased 8.1 percent from $320,000 to $346,000, while median cash flow increased 5.2 percent from $80,000 to $84,175. Notably, this is the first quarter in at least a year where both median revenue and median cash flow of sold businesses were up versus the prior year.

C-store transactions, however, didn't see a bump in value metrics year over year. The median selling price of convenience stores sold by participating brokers in the first quarter of 2011 was $133,000, compared to a median asking price of $150,000. The median revenue for those stores was $468,000, median cash flow was $95,000. In the first quarter of 2010, the median selling price for convenience stores sold was $285,000, compared to a median asking price of $297,000. The median revenue of those stores was $564,000 and median cash flow was $100,000.

"The reason that the median revenue and sale price is down dramatically is because there is no financing for buyers," Handelsman said. "So, the only transactions that can close are those where the buyer can come up with all cash, or convince the seller to finance part of the deal. That means that lower-priced businesses can move, but higher-priced ones, below the level of private equity purchases, where they have cash on hand, have a hard time getting sold."

Still, in general, struggling small businesses are finally stabilizing their revenues and recovering from profit declines experienced during the recession, Handelsman said.

"You can't sell a business that's in distress, but these positive changes suggest that small businesses are becoming healthy again, and many more business owners may now be able to address the opportunity to exit," he noted. "We seem to have hit the bottom in terms of sale price, as pricing has leveled out over the past several quarters, and is even up slightly relative to what it was a year ago."