BizBuySell reported that small business transactions reached record levels in 2014 as brokers reported the highest number of businesses changing hands since BizBuySell started tracking data in 2007. The transactions tracked by BizBuySell are relatively small with median revenues of $450,000 and median cash flow of $100,000.
A total of 7,494 closed transactions were reported in 2014, an increase of over six percent from the 7,056 transactions in 2013, which was the previous record. This marks the second straight year of such strong activity after several slow years during and immediately following the recession. On average, 2013 and 2014 transaction totals are up 55 percent over the recession and recovery period from 2010 through 2012.
The increasing volume of small businesses changing hands can be attributed to a number of factors. In BizBuySell’s December survey of business brokers, respondents cited an increase in the number of qualified buyers in the market as the top driver of growth. The second most common response was the general improvement of the small business environment. At the same time, retiring Baby Boomers account for many of the new sellers in the market. In the same survey, more than 78 percent of business brokers attributed at least a quarter of their closed transactions to Baby Boomer sellers.
Insight Report data supports the belief that small businesses are performing at a higher level. The median revenue of small businesses sold grew from $405,905 to $417,562 in 2014, and the median cash flow rose from $97,000 to $100,000.
Improving financials gave sellers more leverage during the sales process, leading to a slight uptick in median sales price as well, from $180,000 in 2013 to $185,000 in 2014. Financial multiples grew modestly as the average revenue multiple rose from 0.59 to 0.61 and the average cash flow multiple moved from 2.21 to 2.24. This indicates that while sellers are getting slightly higher returns out of their businesses, buyers continue to receive good value on their purchases.
“It was great to see the transaction surge from 2013 carry over and even swell in 2014,” Bob House, Group GM of BizBuySell.com and BizQuest.com, said. “Small businesses continue to grow healthier, giving sellers confidence that they can receive a good exit price and buyers optimism that they are receiving a sustainable business. The result is a market with many successful transactions for both sides.”
Fourth Quarter Continues Growth Trend; Financials Reach All-Time Highs
In addition to the annual data, BizBuySell’s Insight Report also revealed a strong fourth quarter to end the year. The 1,848 closed transactions in Q4 2014 represent a 12 percent increase from the same period in 2013. Q4 2014 also marked the third consecutive quarter of increased median revenue, topping out at $445,146; the median cash flow hit $103,829. Both financial indicators are at their highest point since BizBuySell started tracking the data in 2007.
These improved financial numbers are allowing sellers to both ask for and receive more money for their businesses. The median asking price for a small business grew to $224,990 in Q4 2014 after sitting around the $200,000 mark for much of 2013 and early 2014. Asking for more money appears to pay off as the Q4 median sale price stands at $200,000, a strong increase from both Q4 of 2013 ($175,00) and Q3 of 2014 ($189,000).
“While 2014 in its entirety was a big year, it’s a good economic indicator that Q4 ended so well,” House added. “The record-high financials are a particularly strong positive for the business-for-sale market and small businesses overall.”
Data Points to Continued Growth in 2015
Even with all the transaction activity occurring in 2013 and 2014, there still appears to be strong supply and demand in the pipeline for 2015. As the economy continues to strengthen, small business financials are likely to keep improving, and sellers will be more confident that they can successfully exit their businesses.
Brokers in BizBuySell’s survey agree as 82 percent expect transaction activity to increase in 2015 and more than 45 percent believe final sales prices will rise in 2015 compared to just 12 percent who believe they will decrease. And while Baby Boomers were active in 2014, brokers are confident they will remain a driver of supply. Seventy-eight percent of brokers said they expect a larger number of Baby Boomers to exit their businesses in 2015 than did in 2014.
“The number of small business listings on BizBuySell.com and BizQuest.com continue to grow as more owners begin the process of selling,” House said. “While the peak of this activity is unknown, all the fundamentals signal another strong market in 2015.”
APPENDIX: Additional Statistics from Small Business Listings and Transactions Reported to BizBuySell
