Booming business: for the sale of businesses
More proof that Portland is bouncing back from the Recession: small businesses sold for 75 percent higher than last year, and the number deals have more than doubled since 2010.
A record number of 2,589 businesses changed hands nationwide during the third quarter of 2017, according to BizBuySell's recently released Q3 2017 insight report. That's a 24 percent increase from this time last year, and BizBuySell concluded that positions 2017 to be a record-breaking year for small business transactions.
The numbers continue a two-year trend of robust quarter-over-quarter business-for-sale market growth, with Q4 of 2016 being the only outlier. While many factors contribute to the active business-for-sale environment, a solid economy, optimism for tax reform and relaxed regulations under the federal administration encourage more entrepreneurs to enter small business ownership.
BizBuySell is one of the most heavily trafficked online marketplaces with business sale listings. Founded in 1996, it currently has an inventory of 50,000 active listings and more than 1.4 million monthly visits.
Bob House, president of BizBuySell.com and BizQuest.com, told the Business Tribune about some of the factors contributing to the nation's growth in small business transactions — and what's happening in Portland's market.
"It's been a big year, we saw the same kind of record transactions through the first three quarters — it's the most we've seen since we've been reporting on this data," House said. "Businesses have been improving their bottom line over the last number of years and growing revenues, cash flows, and they're proving financials to make it attractive to new owners by a healthy, growing business."
BizBuySell.com has a large share of participating brokers who use the service. It's self-reported, so it's not a complete data set. It tracks days on the market, asking price and sale price, and has seen prices, revenue and cash flow rising over the last few years.
"Nonetheless, it's very indicative of what's going on in the small business market, particularly when you're talking larger, national stories where we have 25,000-plus reported companies," House said. "It's hard to see the trend in 20 (transactions), or pops in a particular market, as we have here in Portland."
"About Portland specifically, 21 businesses were sold in the most recent quarter, and the median sale price is a lot higher than last year — actually, 75 percent higher than a year ago," House said. "That last year seems to have been a particularly low point on the median sale price for whatever reason, it usually just has to do with the mix of businesses in that sale — the manufacturing businesses always fetch more."
In Portland, there were 21 reported closed transactions in Q3. Q2 had 24, and Q1 saw 26 transactions.
"We use medians primarily because if you have a small sample size and a high-value business, the averages really get skewed if you use an average," House said. "The median at this point of the range is a better caterer on the whole: what's the midpoint size of the businesses they're selling in the market?"
In Portland, 167 businesses were listed at a median asking price of $240,000, down a little from the $288,000 median of Q3 of 2016.
"In Portland, what's interesting, I noticed you had 167 current listings this quarter, Q1 it was 162, it seems to be kind of in that range. It's been pretty flat for Portland," House said. "The number of listings, overall nationally we're staying level and bringing more small businesses online. The last few quarters, for whatever reason, the businesses listed in Portland have been a little bit smaller in terms of the median asking price."
The median asking price was $240,000 in Q3, $297,000 in Q2, $300,000 in Q1 and $290,000 in Q3 of last year. The 167 businesses listed in Portland during Q3 are asking for less than the international prices, which House says usually all comes down to cash flow.
"Lower cash, smaller business, less profitable businesses listed currently in Portland, that's why the median asking price is lower than it's been the last few years," House said.
In Q3, 23 percent of the total 167 Portland listings are restaurants.
"The restaurant business in general is our biggest category on our website," House said.
That's a higher percentage than previous quarters, though: restaurants were 19 percent of listings in Q2, 17 percent in Q1 and 16 percent a year ago in Q3. Most restaurants tend to see a lower sale price than other categories.
Businesses listed in Portland in Q3 of 2017 had a median revenue of $440,000, also down from $452,5000 over the same time in 2016. Median cash flow for Portland businesses is also down, at $97,000 compared to $108,125 during Q2 this year.
BizBuySell's study shows that businesses are selling faster, as well as for more money.
"I'd say (Portland's) supply seems to be fairly steady compared to nationally, (where) we're seeing a bit more rising in inventory levels," House said. "There's been more of a shift in this year to smaller businesses, probably because of the restaurants."
In the Recession, Portland saw five deals go through in Q3 of 2010 — the year this company started analyzing data.
"It was really hard to get deals done back then. If you look at all of 2010, it's 8, 10, 5, 11 — the number of deals getting done (in Portland) has more than doubled since that time frame," House said.
Compared to the Recession, people are able to sell businesses more easily now.
"There's a higher confidence among owners now, a high confidence among buyers that these rising financials are going to be able to provide a good living for the owner and future growth opportunities, so deals are getting done across the country much more so than they were in 2010," House said. "We hear this from not only our data, but from brokers and conferences we attend: it's definitely a good time right now for the industry."
There were 2,589 closed transactions reported this quarter nationally.
"It's mostly the economy, mostly the availability of capital, cost by buyers, and a retiring Boomer community ... I think that's what's really driving it," House said. "And maybe there's some political uncertainty in there. People just want to be ready at a good enough time to get out, and as a buyer you see the economy's in a good position to get in, I think I could keep this going, deals are getting done more quickly."
According to the BizBuySell graphs, the median revenue of businesses listed and sold on the site has been increasing of the last three years, and because of growth cash flow is ticking up as well.
"It's a real interesting thing in the retail category: the median revenue of retail businesses sold, fell 7 percent of median revenue of retail business nationwide," House said. "So, the rest of the industries on the other hand saw a 22 percent increase in revenue — so people are going out to eat."
According to House, cash flow of those retail businesses declined 11 percent year over year, and median sale prices as a result climbed 12 percent year over year in Q3.
"It's definitely that time in the retail business — you've got to figure out how to differentiate and keep customers loyal and coming back to you, with your own ecommerce software or better services or whatever," House said. "A lot of this retail space is converting to service space retail versus product retail, which people recently go to Amazon for."
Along with that, the retiring population is selling their companies in droves.
"You have a lot of Boomers who are retiring who own these businesses and it's a good opportunity, a good time for them to cash out and be able to fund their retirement so there's a lot of supply with a lot of them retiring at this time," House said.
Nationally in Q3, transactions range from $3.5 million for a contracting business for $43,000 for a florist on the low end.
"You have everything from strategic buyers to private equity groups buying businesses and piecing them together — certainly the biggest category is owner-operator," House said. "Somebody's buying a business as a way to make a living and sells to their family to build equity in something that's a saleable asset down the road. You can't sell your job, as the saying goes."
By Jules Rogers
Reporter, The Business Tribune
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