NEW YORK – As demand for small businesses increases, so do their selling prices, a sign that owners are reaping the rewards of keeping companies lean and healthy since the recession.
BizBuySell.com, an online marketplace for small businesses, counted 2,685 closed sales of companies during the third quarter, up nearly 4 percent from 2,589 a year earlier. The companies sold had a median sales price of $249,000, up nearly 11 percent from a year earlier and the highest since BizBuySell began keeping records in 2007. The company gets its data from a survey of business brokers.
Sales of small businesses have been increasing for nearly six years as companies first recovered from the recession and then began to thrive as the economy picked up. Small businesses' revenue and cash flow have been growing, making them more attractive to buyers. The median revenue for the companies that were sold during the third quarter was up more than 7 percent at $530,995 from a year earlier. Their median cash flow was up nearly 3 percent at $116,299.
Cash flow is critical to a company's health; it represents the amount of money that moves in and out of a business during a month. Without a strong cash flow, a company can struggle to pay its bills.
Small businesses' financials have improved along with the economy, but owners' more conservative approach to hiring and borrowing since the recession has also helped. Although owners have been hiring, they've been doing so only when they believe their revenue justifies the added expense. And they've been cautious about taking on debt even as banks have courted the small business market. A survey taken in July by researchers at Pepperdine University's Graziadio School of Business and Management and Dun & Bradstreet Corp. found that just a third of businesses with under $5 million in revenue planned to raise financing in the next six months.
Business sales have also been boosted by retiring baby boomers. Many owners held on to their companies through the recession and its early aftermath, then began selling in 2013 as demand increased.
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