Business brokers reported 5,689 closed deals in 2012, an increase when compared to 2011according to BizBuySell 2012 data. Median asking price was $85,000 which was an increase of 2.8 percent over 2011, while the median sale price was $160,000. Median cash flow for these businesses was $88,902.
Sales of small businesses are doing quite well according to these figures and will continue to increase. If we assume that the cash figure was close to the actual seller’s discretionary earnings figure (SDE), then the SDE was 2.08 percent of the asking price and 1.8 percent of the selling price.
It’s hard to believe that you can buy a business with a cash flow of nearly $90,000 for only $160,000. However, considering BizBuySell is the largest online business listing sites, their accuracy is probably right on target.
According to the data, there was a small decrease in the difference between the asking price and the actual selling price. Businesses sold for 86 percent of the asking price in 2012 while it was at 84 percent for years.
The breakdown of what sold in 2012 according to the BizBuySell data is:
- Restaurants 19 %
- Retail – Other 26%
- Service 41%
- Manufacturing 06%
- Other 08%
It seems pretty evident that prices are down substantially based on selling price versus asking price and cash flow versus full price.
Based on over 5,600 sales, it’s easy to conclude that now is a good time for people to buy a business. With that said, keep in mind; you still need to conduct your “due diligence” on a business that’s for sale. Don’t’ get caught up in saving money and getting a business at a great deal, without considering important factors such as: mystery shopping, last minute changes, business vision, and talking to customers.
Before you start into the negotiations state, try some mystery shopping. You can hire mystery shoppers and have them record the important details of their experience and you should be a mystery shopper as well for first- hand knowledge. If the seller can’t make a last minute meeting change, you might want to look closely at weather the business requires you to be there more than the seller is letting you know. Check with employees and supervisors to make sure the business vision is consistent with that of the owner. Talk to customers and make sure they are customers for reasons such as valuable products and services instead of relationship reasons.
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