Small-business transactions across the nation remained strong in the first quarter of 2015, continuing a two-year trend of robust activity in the business-for-sale market, according to a report from BizBuySell.com, an online marketplace for companies to be bought and sold.
In Wake, Franklin and Johnston counties, BizBuySell analyzed 52 closed transactions in 2014. Businesses sold for a median sale price of $225,000. On average, they sold at 90 percent of the asking price.
The transactions and median asking price are down a bit compared to 2013’s numbers of 63 closed transactions at a median selling price of $237,500. Jeff Snell, founder and principal broker at ENLIGN Business Brokers in Raleigh, said those numbers don’t reflect a declining market but a different mix of businesses going up for sale each year.
However, if you are hoping to sell your business, there are a couple of mistakes that you should avoid, Snell said.
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Bob House, general manager of BizBuySell.com and BizQuest.com, said the numbers vary, but he estimated only 10 to 50 percent of businesses that are put on the market actually sell.
Owners who are considering selling should be paying attention to the average multiples of their revenue and cash, Snell said. In the three-county area, the average multiple of revenue for businesses that sold was .66 times and 2.18 times of cash flow.
High-quality businesses typically receive a multiple of three for cash flow, Snell said. That means a business with $100,000 in cash flow would sell for about $300,000.
Owners can improve their chances of getting a higher multiple by keeping accurate books and records that demonstrate the company is a stable or growing company in its industry. Owner-operators should demonstrate that they are not a critical employee, but that the company has a layer of management that can continue operations when the owner is gone. Other factors that will improve the value of a company include being relocatable, having an online component, possessing intellectual property and multiple streams of revenues, Snell said.
The biggest and most easily fixable mistake owners make is when preparing to sell is not reporting all income.
For example, one of Snell’s clients stopped depositing cash in the bank in 2014. It was enough money to make it look like a cash flow decline.
“So every dollar that you are trying to save 30 cents in taxes,” is costing you $3 of sale value, he said.
Another common mistake is over-valuing a business.
Savvy buyers will take a look at the multiples and move on. Then when an less experienced buyer makes an offer and tries to secure a loan, the bank rejects it.
“The bank will not lend money on an overpriced business,” he said. “It is built-in insurance for any buyer.”