Economic data for the first quarter of 2010 from the nation’s largest business for sale database that suggests small business-for-sale transactions and valuations have continued to show signs of a slow but sure economic recovery.

According to the BizBuySell.com Insight Report data, the number of closed transactions reported to BizBuySell.com in First Quarter 2010 rose slightly, 0.3 percent, as compared with the same time period in 2009 — from 1,146 transactions to 1,149. Market improvement is more evident when comparing First Quarter 2010 data to the prior quarter, with BizBuySell.com reporting a healthy 6.3 percent increase in transaction volume. Closed transactions are reported to BizBuySell.com by business brokers nationwide.

“Although the numbers are somewhat flat, the business-for-sale market continues to move in a positive direction, with each quarter since the Second Quarter of 2009 showing improved performance versus the year-ago period,” says Mike Handelsman, General Manager of BizBuySell.com. “Motivated business sellers are increasingly able to get deals done at reasonable terms, and more business buyers are finding good value in the market at this time.”

Business Valuations Drop, Driving the Increase in Transactions

Driving the increase in completed deals, BizBuySell.com notes downward changes in the metrics that are used to value companies. Compared to the same quarter last year, revenue multiples and cash flow multiples have both declined, suggesting that business buyers may be able to buy business value at a discount, compared to prior years.

Revenue multiples on reported closed transactions in First Quarter 2010 fell from 0.69 to 0.64 compared against First Quarter 2009, representing a 7.4% decrease. Similarly, cash flow multiples dropped slightly from First Quarter 2009’s 2.69 to First Quarter 2010’s 2.51, representing a 6.5% decline. The revenue and cash flow multiples are calculated by dividing the selling price of the business by its reported annual revenue or cash flow.

The median sale price for closed business-for-sale transactions during First Quarter 2010 was $150,000, down from $165,500 in First Quarter 2009, suggesting that buyers may have the upper hand over sellers in the current business-for-sale market.

“There is no doubt that we are in a strong buyer’s market,” says Handelsman. “Many sellers trying to sell their companies have weaker financials due to the difficult economy. As a result, those sellers, and even some sellers of healthy businesses, have been dropping their prices in order to get a deal done.”

How Sellers Can Help Improve Their Business’s Value

While current market conditions are creating a buyer’s market, there are still ways for sellers to make their businesses more attractive to foster a successful business sale. BizBuySell.com suggests that sellers consider the following attributes of closed transactions that have helped those businesses reach a deal that works for both buyer and seller:

Be Realistic About What Your Business is Worth – Prices of small businesses have come down over the last 12 to 24 months, both in terms of average sale price, and multiples of company cash flow and revenue that businesses are selling for. This is the result of a few factors, but most notably a lack of confidence from buyers that the economy will improve quickly, and a lack of available capital. Overpriced businesses are having a hard time selling successfully, especially with many other businesses selling for lower prices.

Be Willing to Offer Seller Financing – Because small business lenders and the U.S. Small Business Administration are being more careful about whom they lend money to, and under what terms, capital is much more difficult to obtain than it was a few years ago. As a result, it is very rare today for a small business transaction to close without the seller providing some form of financing to the buyer. Usually, this takes the form of accepting 25-75% of the purchase price of your business as a 3-5 year loan to the buyer, rather than as cash up front. While this generally something that a seller does not want to deal with, it’s almost a necessity in today’s challenging credit market.

Give the Buyer a Roadmap to Success – Buyers are tentative, and the market is challenging. As a result, those sellers that can provide potential buyers with a plan for success will give themselves a better chance of making a sale happen. A list of potential revenue enhancement ideas, cost-cutting ideas, or just the ability for the seller to stay on in a consulting role for 6 to 12 months can all greatly enhance the potential buyers’ vision of success, which can help get them over the hump in making this difficult decision.

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