Small Business Transactions Rise, Sellers Earn More

In addition to an increasing number of closed sales in the third quarter, there was also a growing number of businesses listed for sale.

small businesses and acquisitions

A total of 1,987 closed transactions were reported in the third quarter this year, representing both a 17.9 percent increase from last year and the highest number of small business sales recorded in a third quarter since BizBuySell began tracking data in 2007, according to the business-for-sale marketplace company’s latest report.

This quarter’s numbers slipped just 2.1 percent from the second quarter of 2014, which remains the most active quarter for small business sales since before the recession, and it also keeps 2014 on pace to record the highest number of small business transactions since the report’s inception.

The average revenue multiple grew nearly 6 percent this quarter compared to last year, now up to .62. At the same time, the average cash flow multiple jumped even higher, up nearly 9 percent to 2.38.

In addition to an increasing number of closed sales in the third quarter, there was also a growing number of businesses listed for sale.

Total listings were up 2.2 percent from the same time last year, with the most notable growth in manufacturing businesses (up 4.1 percent), service-industry businesses (up 3.9 percent) and restaurants (up 3.5 percent).

These sectors also saw an increase in the number of closed transactions, with service-related businesses leading the way with a 17 percent increase while manufacturing was up 16.2 percent and restaurants up 13.3 percent compared to last year.

"While many small businesses may still be recovering from the recession, the businesses that are currently pushing transaction levels to record-highs are actually performing very well," Bob House, group general manager of BizBuySell and BizQuest, told eWEEK. "Both median revenue and median cash flow of sold small businesses have been rising steadily since the recession, pointing to increased profitability of these businesses. Both numbers have risen each quarter of 2014."

The study also revealed sellers are more confident they will receive an acceptable sales price this year than they were last year.

In fact, 21.2 percent of sellers said they were "very confident" they could sell at an acceptable price, a 20 percent increase from those who felt the same in the 2013 survey.

Nearly 47 percent of those that were more confident this year credited improving business financials as the primary reason, a feeling that is reflected in the rising revenue and cash flow data this quarter.

Even with increased seller confidence, buyers also remain generally confident with 78.6 percent believing they can buy at an acceptable price, according to the same survey.

Improving lending conditions and the overall growth of the economy are helping buyers meet the higher demands of sellers, the report noted. Buyers are also benefiting from the increasing number of sellers willing to offer seller financing in order to push deals through.

In the BizBuySell Confidence Survey, nearly 30 percent more sellers planned to take on part of the financial burden through seller financing than planned to in 2013.

"As the economy continues to grow and small business financials remain high, technology owners will be able to value their businesses at a higher number than previously possible," House noted. "There are always outliers, but as technology continues to be a vital aspect to both the consumer and business markets, owners should be optimistic about their future."