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Is it Time to Sell Your Business or Buy a New One?

Have you delayed retirement because the recession was preventing you from getting a fair price for the business you worked so hard to build? Have you been contemplating buying another business, but couldn’t find the financing? Small business owners in both of these situations have a lot to be hopeful about if  if BizBuySell’s First Quarter 2012 Insight Report [1] is any indication.

buy or sell

BizBuySell, an online marketplace for buyers and sellers of businesses, tracks business sales quarterly, and its latest report shows the number of businesses sold is continuing the steady rise begun in the third quarter of 2011. Almost 4 percent more businesses were sold in the first quarter of 2012 compared to the same period in 2011. What’s more, the 1,729 businesses reported sold in the first quarter of 2012 represent the largest number of transactions since the fourth quarter of 2008, making it the most active quarter in more than three years.

That sound like reason to celebrate, but there’s some bad news, too (at least, if you’re looking to sell your business): A major reason for the increase in business sales is that prices are dropping. The average sale price as a multiple of both revenue and cash flow decreased compared with the same period last year. In fact, the average sale price as a multiple of annual revenue fell over 10 percent to 0.59—the lowest it’s been since the end of 2008.

Of course, lower prices are good news if you’re looking to buy a business. More good news for both buyers and sellers is that it’s getting easier to finance the purchase. BizBuySell reports that there’s been growing demand from people who are laid off and want to buy businesses instead of looking for jobs. However, until recently, those would-be buyers were stymied by the difficulty of getting financing. Now, banks are loosening the purse strings, and more business owners are able to offer seller financing, so buyers have a lot more options.

The businesses up for sale are healthier overall, too. BizBuySell reports that the median revenue for businesses sold in the first quarter of 2012 increased from $346,000 to $360,000 compared to the same quarter last year. With many signs pointing to small business optimism, it’s likely entrepreneurs will feel confident enough about their businesses’ health to put them up for sale if they want to.

If you’re on the fence about selling your business, CNBC points out another factor that might convince you to make a move: The Bush tax cuts are set to expire at the end of this year [2]. With these cuts’ future uncertain, many business sellers seeking to avoid a possible increase in the capital gains tax are looking to exit their businesses before December 31, 2012. And if you want to do that, you’d best get started on the sale process soon before time runs out.

Of course, you shouldn’t let a deadline push you to sell your business before you’re ready—but if you’ve been waiting to sell until you could get a better price, that time just might be now.  More entrepreneurs will feel confident enough about their businesses’ health to put them up for sale if they want to.

Buy or Sell [3] Photo via Shutterstock