Local business sellers have accepted reality at last.
Asking prices continue to fall for businesses across Southern Nevada, and owners looking to get out are more willing to finance buyers, says a new report from BizBuySell, a California company that lists businesses nationwide for sale online.
But those price declines will likely reverse in 2012, as sales pick up and the earnings that help set prices improve.
"We think prices are bottoming out, and will stabilize and increase at a slow rate this year," said Mike Handelsman, BizBuySell's general manager. "There are a lot of signs the economy is recovering, and that would suggest that, slowly, buyers will get more access to capital. They'll also become more confident in economic growth and their ability to be successful with a small-business purchase."
That means it should be a little easier to sell -- and buy -- a local business in coming months.
"For sellers who want to get out now, this is probably as good a time as we'll see in the next couple of years," Handelsman said. "For buyers, now is a good time to buy a business at an attractive price, and the economy seems to be on the rebound."
SELLER FINANCING REQUIRED
Some credit for the growing buyer's market goes to company owners who finally understand what their companies are really worth after years of economic troubles.
"Initially, business owners resisted the notion that their business was suddenly worth less than it was before the recession," Handelsman said. "It's like owning a house. Your house is worth a certain amount, and when the economy hurts and other houses start selling for less, you might say, 'Oh, that was a distress sale or foreclosure, but my house is worth what it was before.' It's a natural phenomenon."
BizBuySell's data show the median asking price for small businesses in Southern Nevada dropped 10.5 percent year over year in the fourth quarter, from $190,000 to $170,000. That's despite improvements in revenue and cash flow, both of which underpin asking prices. Median revenue for local businesses listed for sale in the fourth quarter was $360,000, up from $350,000 a year earlier. Median cash flow was $90,450, up from $84,360 in the fourth quarter of 2010.
It's a little surprising that better financials haven't already boosted local asking prices, Handelsman said. Nationally, the median asking price ticked up slightly, by 1.3 percent, to $180,000, in the quarter.
Sales and income aren't the only price drivers, though.
Financing plays a role, too. If buyers can't borrow, the price they can afford to pay drops. And credit remains tight in Las Vegas. That's why Handelsman said more business owners are helping fund sales of their companies.
"They have to finance part of the deal and walk away with less cash," he said.
Take Jeff Berkow.
Berkow didn't have trouble finding a buyer for Power Pallets, a local manufacturer of shipping pallets. Within three weeks of calling a business broker last fall, Berkow had a buyer in Ralph Knight, a Seattle custom-home builder looking for new business opportunities after home sales slowed dramatically in the downturn.
There was just one hitch: Knight's bank wanted Berkow to kick in financing, as well.
"It's not what I intended," Berkow said. "If you can get all of your money out up front, why not? But once we found a bank, and that bank was quite insistent that I leave some money in the business, I said, 'OK.' I wasn't particularly concerned about leaving money behind, because it's a very solid business, and it's in good hands. The business will be successful and prosper, and therefore, my money's not at risk. I had confidence in the business I sold and the buyer who bought it."
Berkow is also staying on for a few weeks to help Knight learn the ropes at the 16-worker company. Knight said Las Vegas wasn't his first choice for relocation, but business had slowed to a crawl in Seattle, and Power Pallets matched his experience buying supplies and lumber in the home-building industry.
"The business is turning out very, very well for us," he said. "We bought it from someone (Berkow) who has a lifetime of corporate business experience. It's a very well-organized, very systemized manufacturing business."
FEWER DISTRESS SALES
Drops in asking prices are likely to stop by the end of 2012, industry observers agreed.
Bob Burley, president and corporate broker of FMI Business ad Real Estate Specialists in Las Vegas, said he's already seeing small price increases as more buyers look to purchase. Nor are there as many bargain-basement distress sales these days by owners desperate to get out from under years of losses. Most people selling today are on the market for the traditional reasons -- retirement, divorce and partnership disputes. That means cash flow and revenue drive most of today's pricing. As income and earnings stabilize or rise, prices should, too, Burley said.
He said he expects median asking prices to increase by a few percentage points in 2012, while sales of businesses increase at a "moderate" rate.
"Financing is still not going to be easy to come by, though," he said. "Conditions will improve, but not dramatically."
A little good fortune, plus a continued dose of reality, wouldn't hurt business sellers and buyers either, said Berkow, who plans to stay in Las Vegas and keep his home-based lumber-trading business.
"We got lucky. The buyer and myself both came together at the right time and place. It's still a very tough environment out there," he said. "But we live in a big world where there are always buyers and sellers. It's just a question of finding a fair price. When the market went bad, there were buyers and sellers. When the market's good, there are buyers and sellers. The prices are just different."
Contact reporter Jennifer Robison at firstname.lastname@example.org or 702-380-4512.