In both March and July of this year, the restaurant brokers anticipated strong sales for 2017 saying in March, “These restaurant brokers see strong growth in the number of restaurants for sale hitting the market in the next two years.” In a second posting in July, we continued to cite strong growth writing at the time that, “While Washington remains caught up in politics as usual and movement is at a stalemate, business buyers and business owners are seeing the impact of loosening regulation, easier lending and better economic conditions” as reasons for the growth.
Now the third quarter numbers are out and one of the largest business-for-sale marketplaces, has backed up the restaurant broker’s forecast by reporting 2,589 transactions in the third quarter, a whopping 24 percent increase over the same time period last year. In total, they have year-to-date transactions at 7,491 putting the year on pace to exceed any year since they began tracking in 2007.
While service businesses accounted for thirty-eight percent of the sales in third quarter, restaurant sales accounted for twenty-two percent of the businesses that changed hands. The financial aspects of the restaurants sold were impressive. Overall, the average unit volume of the units sold was reported ahead of last year by twenty-two percent and cash flow that was ahead of last year by nearly nine percent. The selling price of the units was also up nine percent, demonstrating that sellers with strong earnings can command the best pricing.
All businesses for sale are turning over quicker. The latest data from bizbuysell.com indicates median days on the market has virtually plummeted from 171 days for this time last year to just 146 days. This represents the shortest days on market they have reported in ten years. The Restaurant Brokers at We Sell Restaurants are spot on this number, with their year to date days on market down twenty-two percent from the same time period last year. Eric Gagnon, President of We Sell Restaurants had this to say, "Since late last year, we have been seeing much more interest in our restaurant for sale listings and much faster turnover times. We are also seeing franchisors respond to the need to move more quickly with Discovery Days added and Training Dates shortened to meet demand. All of this is in response to the velocity in the market."
In 2016, restaurants accounted for twenty three percent of all small business sales that year. The median price of the restaurant businesses sold was $160,000 with average unit sales of $485,000. Bars and Taverns outperformed restaurant sales in 2016, with average selling prices of $209,000 and average volume of $543,092.
The Restaurant Brokers at We Sell Restaurants are seeing similar results for 2017 with transactions counts ahead of last year by double digits along with higher selling prices on contracts. We are starting to see a tightening of the credit market associated with SBA lending for restaurant sales. That’s a cautionary point amidst all the optimism. Robin Gagnon of We Sell Restaurants says, "We anticipate continued strong transactional volume through 2019 where we anticipate some tightening of prices after too many businesses enter the market and supply outpaces demand. For now, the market is right if you’re planning to sell."
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