Advice for Buying a Restaurant and Selling a Restaurant

We Sell Restaurants Compares Activity to BizBuySell First Half of 2016

Posted by Robin Gagnon on Jul 26, 2016 5:32:22 PM

According to the most recent BizBuySell report business sold in 2016 are up slightly over 2015 results.  They also state that the average time on the market is now around six months.  How does that relate to the Restaurant Brokers at We Sell Restaurants?  Our data shows transactions for the same time period are up 30.56% for the same time frame in terms of unit count.  Average time on the market for BizBuySell brokers averaged over six months.  The average for restaurants for sale listed by We Sell Restaurants the time frame between listing and selling was under 160 days compared to the six month time frame listed in the national study.  
We Sell Restaurants, the nation's largest restaurant broker firm compares their results to BizBuySell.com, the Internet's largest business-for-sale marketplace.  BizBuySell is reporting that "the total number of small businesses changing hands in the first half of 2016 represents an increase from not only last year, but from the record-setting 2014 as well."  The statistics for BizBuySell are gathered from business-for-sale transactions reported by participating business brokers nationwide.
 
Twenty-one percent of the listings cited in the BizBuySell report were restaurants with 792 restaurants of the total businesses sold.  From BizBuySell, a total of 1,935 closed transactions were reported in the second quarter of 2016, bringing the year-to-date total to 3,775, a slight improvement from the 3,743 reported in the first half of 2015. If this pace holds up, 2016 is also on track to surpass 2014, when BizBuySell reported a record 3,755 transactions in the first half of that year.  Their graph shown below from the report shows the transactions by quarter. 

2016 Q2 Closed Small Business Transactions

Key financials of the 1590 restaurants n the BizBuySell report for the year included a median sales price of $180,000 versus a median asking price of $220,000.  This means that sellers achieved 88% of their sales price.  That is slightly lower than the restaurant brokers at We Sell Restaurants for the time period where selling prices were closer to 90% on average.  The median revenue of the restaurants in the BizBuySell report was $500,000 and median cash flow was $92,000.  The bars and taverns in the BizBuySell report fared better in terms of median revenue at $534,000.  

Bob House, President of BizBuySell.com and BizQuest.com said of the listing pipeline, "Despite the many deals already completed over the past few years, there still appears to be a strong supply of listings, driven by retiring Baby Boomers, and at the same time, qualified buyers with access to capital."  Eric Gagnon of We Sell Restaurants agrees saying, "The uptick we have seen in listings can definitely be attributed to baby boomers as well as more churn within the franchise resale market as buyers divest some brands or units in favor of other franchise locations. 

Balance of 2016 Remains Good Time To Buy or Sell, Election Among Key Issues To Watch

According to the BizBuySell report, mulitples are holding strong.  Restaurant sales reported by BizBuySell showed cash flow multiples on average of 2.01 for Restaurants and 2.12 for Bars and Taverns.  They show the average cash flow multiple for all businesses is 2.26, just slightly down from 2.22 in 2015 and they say that "minimal year-over-year variations point to a stable market."  For the restaurant brokers we are actually seeing higher multiple particularly for franchise resale transactions.  It is customary to see asking pricing at approximately three times seller's discretionary cash flow and the selling price coming in very close to that number.  

The BizBuySell report raises the issue of the Presidential election as an item on small business owners' minds and we agree.  Despite your party affiliation, the election results may keep some out of the market with fear of the unknown dominating actions. 

The BizBuySell report did not comment on is the availability of lending for business sales, perhaps the greatest stimulus to deals.  The restaurant brokers are seeing a very strong lending market which is contributing to many more deals being funded and closed on in short periods of time.  Robin Gagnon of We Sell Restaurants says, "Getting funding is key to buying a restaurant.  Our SBA lenders are strong and we get results within 72 hours of submission and close deals in weeks.  That is clearly affecting the pipeline of sales and ready capital is helping many buyers leverage their investment.  This is true for both franchise and independent transactions." 

 

2016 Q2 Small Business Sales by Sector

Source: bizbuysell.com

Topics: Buying a Restaurant