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Military and Veteran Entrepreneurs - Price of small businesses soars in Q3

Posted by Michael Horn on Fri, Dec 09, 2016 @ 07:55 AM

I know that I'm a little late with this post, but this article is important to those of you considering buying a business. Here Urvaksh Karkaria at the Atlanta Business Chronicle describes businesses selling in the Metro Atlanta area, but the information my very well apply to your locale. As we discuss in class, Entrepreneurship for Transitioning Warriors, when a veteran plans to buy a business there are many factors that must be understood. One of those is the changing market for businesses. Prices rise and fall just like with other commodities. It is important for veterans to understand these price changes and factor the changes into the decision making process.

Karkaria writes ---Small businesses in metro Atlanta sold for more — and raked in more revenues — in the third quarter, compared with a year ago.

The median selling price of small businesses sold in metro Atlanta soared nearly 90 percent in the third quarter, versus a year ago, according to new data from online business-for-sale marketplace BizBuySell.com. The median revenue of those businesses rose nearly 24 percent from a year ago.

According to an analysis of 69 closed transactions in metro Atlanta by BizBuySell, businesses sold for a median price of $250,000 in the third quarter, compared with $132,000 a year ago. Businesses that sold in Q3 had a median annual revenue of $378,023, compared with $306,035 a year earlier.

Nationwide, brokers reported 2,090 closed deals to BizBuySell in the third quarter — the highest number of small business sales recorded in a third quarter since the company started tracking data in 2007. In the third quarter, the median revenue of sold businesses grew 4.3 percent year-over-year from $438,000 to $456,768. The median sale price in the quarter increased nearly 7.6 percent from $185,000 last year to $199,000.

Buyers and sellers are in sync with the timing of their business plans, which is driving transactions nationally, said Bob House, president of BizBuySell.com and BizQuest.com.

“Sellers appear eager to exit their business in 2016, likely...to strike while the iron is hot, rather than risk waiting too long and enduring another economic downturn,” House said. “Buyers on the other hand are becoming more confident in the future performance of the market and want in on the action now.”

Sellers feel more confident than prospective buyers in the today’s market, but the gap is closing, according to BizBuySell. “With sellers slightly less confident than a year ago, it seems to be further evidence of a desire to sell their business now, leading to an increase in inventory,” House said.

This past summer, transactions were slower than usual and deals in the pipeline were bogged down in the funding process, noted Sara Burden, president of Walden Businesses Inc.

“The sluggishness in funding continues to plague buyers,” Burden said, pegging it on U.S. presidential election uncertainty.

Apathetic buyers are “unable to pull the trigger,” she noted. “This is not the case with our client sellers — many of their businesses are in the best position since 2008.”

Due diligence, even on smaller transactions, is becoming more arduous for sellers.

“Buyers are exploring in minute detail every aspect of a business’ operation,” Burden said. “A seller needs to find the ‘oops’ first and clean them up before a buyer discovers them; and ultimately questions the logic in continuing with a purchase.”

Burden expects activity to pick up post-election. “The election will allow a lot of people to finally breathe,” she said. “It’s like having to make a tough decision: once you make it — good or bad — at least it’s made and you deal with it and move on.”

Deal volume in the third quarter was down 25 percent in the third quarter, noted Art Lennig, regional director at Murphy Business & Financial Corp. Sale prices in the quarter held steady, Lennig said. Summer is typically a slow quarter for small business transactions.


By the numbers
The median selling price of small businesses sold in metro Atlanta rose nearly 90 percent in the third quarter, compared with a year ago.

  • Median sale price $250,000
  • Median annual revenue $378,023
  • Median cash flow $96,227

Source: BizBuySell.com

Topics: Veteran, Entrepreneurs, Vets, Entrepreneurship, vetrepreneur