Though 2009 was a bad year for small-business sellers, data recently released on Q4 suggests that small-business sales might be gaining momentum—especially in the restaurant space.
According to data released by BizBuySell.com, an online business-for-sale marketplace, transactions of for-sale businesses declined 28 percent between 2008 and 2009.
But while each of the first three quarters of 2009 witnessed steep declines in the median price of sold businesses compared to the same quarters of 2008, the median price in Q4 of 2009 increased 1.4 percent over the fourth quarter of 2008.
Mike Handelsman, general manager of BizBuySell.com, says that while recovery from the recession will be slow, there is reason to be optimistic in 2010 if you’re a small-business seller.
“We think 2010 is going to be a better year for buying and selling businesses than 2009, but we don’t think it’s going to be a dramatic improvement,” he says.
Handelsman says that many small businesses that were on the market through the recession are still looking to sell, and that demand is ripe as people who were laid off during the recession look for new means to income.
“With high supply and high demand, you’d assume we have a lot of transactions,” he says. “But the limiting factor is capital availability. It’s still tough, if you’re a buyer, to get access to [Small Business Administration] lending.”
Because lending has been difficult, Handelsman says that buyers and sellers have been forced to get creative with their transactions.
“One of the definite changes that we’ve already seen, that I think we’ll continue to see, is the use of seller financing to finance transactions,” he says.
“What’ll often happen is a buyer will buy a restaurant for, say, a quarter of a million dollars, and he’ll put down 100,000,” he says. “Then the seller will finance the remaining 150,000 in the form of a note that’ll get paid off usually over about five years.”
Handelsman says that the recession created a “fundamental shift in market dynamics,” and that lending will probably never be as strong as it was leading up to the recession.
As momentum for small-business sellers gains in 2010, restaurant sellers especially have reason to be optimistic. In Q4 of 2009, sales of restaurants increased 1 percent over the same quarter of 2008, according to the BizBuySell.com report.
It was the only segment of business to record increased transaction numbers.
“One thing that can be a little bit different about a restaurant is they tend to have a somewhat higher level of assets related to the business, because they’ve got tables and chairs and they’ve got kitchen equipment,” Handelsman says. “So that does lead to … better abilities to secure a loan.”
Quick serves, Handelsman says, are especially in a good position because their in-store sales are more predictable than those of higher-end eateries.
And for business sellers, a steady, predictable cash flow is exactly what can secure hope for 2010.
“If their business is doing moderately well—in other words if they have steady cash flow, and that’s been declining for three years straight—if they’ve got steady cash flow, and they’re willing to provide some seller financing, I think their opportunity to sell could be quite good in 2010,” Handelsman says.
By Sam Oches