Time for a rebound?

Business listings, sales declined last year from '08 levels, but there are signs that conditions are improving

Sacramento Business Journal

January 15, 2010 | By Melanie Turner

It was another bleak year for sellers of small businesses across the country. Tough credit markets and a challenging economy led to fewer businesses being sold last year than in 2008, and those that did sell sold for less.

Still, trends indicate the business-for-sale market could be in for a recovery this year, according to BizBuySell.com, the nation's largest business-for-sale marketplace.

In the Sacramento region, the market for buying and selling businesses in 2009 was fairly consistent with the U.S. market, said Mike Handelsman, general manager of BizBuySell.com.

There were 32 closed transactions in the region for the year, down 20 percent from 40 in 2008.

The median sale price was down 22 percent to $120,500 compared to $155,000 in 2008. Businesses that sold last year had median revenue of $222,172 and median cash flow of $82,270.

Because the median sale price does not take into account the size of businesses that sold, evaluating the sale price as a multiple of revenue can provide a more exacting comparison. When doing so, results indicate businesses in the region sold for 17 percent less than a year ago, according to BizBuySell.com. Business owners in the region typically asked for a revenue multiple of 0.57 in 2009, down from 0.69 in 2008.

The number of businesses listed for sale during 2009 also was down. In the fourth quarter, 137 businesses in the region were listed on BizBuySell.com, down 31.5 percent from 200 in fourth-quarter 2008.

Nationwide, the number of businesses sold during the year fell 28 percent to 4,440. The median sale price dropped almost 16 percent to $160,000, or by 3.5 percent when evaluated as a multiple of revenue.

As 2009 progressed, however, the number of closed transactions rose, Handelsman said. "So the trend is getting better," he said. Supply and demand expected to rise

There are other reasons to be optimistic, including a latent supply of businesses for sale, he said. Some people wanting to retire, for example, put off selling last year and many of those businesses are expected to hit the market this year.

Jerry Kearsing, owner of Cheers, a popular neighborhood bar on West Capitol Avenue, planned to retire about a year and a half ago but put it off to put more money in the bank.

Now, he said, he's ready. In October he put the bar up for sale for $275,000. So far, he's had a lot of lookers, but no takers.

"If it sells, it sells," he said. "If it doesn't, it doesn't."

His plan to sell now has nothing to do with the economy, he said. He's simply ready to start using a fifth-wheel travel trailer he purchased in preparation for his retirement.

"We priced the business correct(ly)," he said, adding that it is valued at $350,000.

While many businesses' revenue is down as much as 10 percent and 20 percent, Kearsing said Cheers' annual revenue is down 4 percent. "We're doing very well," he said.

The unemployment rate is another factor that could help boost sales of small businesses, Handelsman said. Unemployment statewide in November, the most recent month for which data is available, was 12.3 percent - and 12.4 percent for the four-county region. About 129,300 people were out of work in Sacramento.

Some of them will want to buy businesses, Handelsman said. As supply and demand rise, presumably more deals will be done.

Still, buyers will need capital. As lending has tightened, many have found it difficult to borrow the money they need to complete a purchase.

"We do believe that that will start to take root in 2010," Handeslman said.

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