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Sale of region’s small buisnesses at a high

By Danielle Douglas,October 23, 2011

Sales of small firms in the Washington area soared in the third quarter of this year, according to third-quarter data from Bizbuysell.com, an online marketplace for small business acquisitions.

The San Francisco-based company only tracks transactions disclosed by brokers, who reported 46 local deals for the three months ending September, up 41 percent from the prior year. National sales, meanwhile, rose 3.5 percent in the third quarter. The majority of the businesses that have traded hands are restaurants and retail operations, such as delicatessens, liquor stores and dry cleaners.

Mike Handelsman, group general manager at Bizbuysell.com, attributes much of the recent activity in the market to a new willingness by owners to put their businesses on the market. Many sellers, he said, had been reluctant to put their businesses on the market for fear lackluster revenue and cash flow would bring poor offers. The number of local businesses listed for sale on Bizbuysell.com, however, grew roughly 14 percent to 819 in the third quarter.

“Sellers are feeling more comfortable about their business performance, with some some good growth and stability,” Handelsman said. “Buyers are getting a little more access to capital and feeling a little bit more confident that we are emerging from the worst of the recession.”

Handelsman said buyers generally have been hamstrung by the lack of available financing, which led to an increase in sellers extending them loans to close the deal, commonly known as seller financing.

Area businesses that traded in the past quarter commanded higher sale prices, despite a plateau in revenue. The median sale price was $200,000, compared with $175,000 a year ago, while average revenue in the third quarter, at $545,000, trailed the prior year’s average of $547,000.

Buyers are still on average paying below the asking price for local small businesses, handing over anywhere from 80 to 90 percent of the list price in the past four years. Sellers, however, are getting higher valuations for their businesses, as the cash flow multiple — the price-to-cash flow ratio — has increased from an average 2.34 in the third quarter of 2010 to 2.48 this time around. Nationally, that ratio stood at 2.42 for the three months ending September.