In class we discuss the option of buying an existing business. This is one of the three ways veterans can get into business and put their military skills to use as entrepreneurs. In this article, Urvaksh Karkaria, Staff Writer Atlanta Business Chronicle discusses an important aspect that's good news to vetrepreneurs who are thinking about buying an existing business. The article about the Atlanta market is a reflection of the US market. Do some research of the market in your area. The selling price for businesses in your area can flucuate for several different reasons. The key is understanding those reasons and factoring them into your decision of whether to buy an existing business.
Karkaria writes - 2015 was annus horribilis for Atlanta’s small business transaction market.
The median price of small businesses sold in metro Atlanta last year fell to $170,000, compared with $256,000 a year ago, according to online business listing service BizBuySell.com.
Of the 224 closed transactions reported to BizBuySell, businesses that sold in 2015 had a median annual revenue of $362,427, down from $533,634 a year earlier. It was also the lowest since 2010. Transaction volume in the Atlanta market rose 14 percent last year, versus the prior year.
The decline in year-over-year sale prices can be attributed partly to smaller businesses selling on the market, said Bob House, group general manager of BizBuySell.com and BizQuest.com. For instance, 64 restaurants were sold in 2015, versus 45 in 2014, and at a significantly lower median sale price, driving the overall median in Atlanta down, House said.
The price the buyer paid as a multiple of the company’s revenue in the Atlanta market was relatively unchanged last year, versus a year ago. The cash flow multiple declined 9 percent year-over-year.
Nationally, 2015 was a “year of stabilization” following robust small business transaction activity in 2013 and 2014, House said. “The prior two years saw a surge of business sales to clear the backlog of pent-up supply and demand coming out of the post recession years,” House said.
Nationally, 7,222 closed transactions were reported in 2015, nearly matching the 7,494 transactions in 2014, which was the highest year-end total reported since BizBuySell started tracking data in 2007.
Deal flow in 2015 remained flat with no significant changes in the number of closings at Atlanta-based business broker Walden Businesses. Even so, Walden had a good fourth quarter with sales prices of businesses coming in 7 percent higher versus the same period in 2014, President Sara Burden said.
Walden saw strong activity in health-care and construction-related businesses during 2015.
“Deal sizes are getting larger each year with more of our clients’ businesses being sold to strategic buyers who are generally willing to pay more,” Burden said. “This is due to the economies of scale gained when combining markets, savings on back-office functions, cross-selling opportunities, and better volume buying.”
2015 began strong but seemed to slow in the last half of the year, noted Art Lennig, regional director at Murphy Business & Financial Corp. The year ended with a “slight increase” in small business transactions over 2014, though the prices those businesses commanded were “not significantly higher.”
Lennig is optimistic about the rest of the year. “It appears that many of the business owners that have been considering selling their business are now moving forward,” he said. “On the other side, there continues to be good buyer interest.”
Falling stock markets and the uncertainty typically associated with a presidential election year could impact the small business transaction market in 2016.
“A lot of people’s personal wealth and their ability to put a down payment for a business is tied to the stock market,” House said. A large pullback in the stock market could reduce the availability of capital and make potential buyers skittish about pulling the trigger.
On the flip side, key financial metrics that drive small business sales — median revenue, median cash flow — are at high-water marks, House said. The wave of retiring baby-boomers could provide further upward momentum.
“You’ve got all these boomers who are going to have to retire and exit their businesses sooner or later,” House said. “So, there should be a good supply of inventory coming on the market.”