BUYERS BE WHERE?

Caroline Rohrer wants to sell her southeast Las Vegas florist business, but she's noticed a big problem with local buyers.

"There aren't any," she said.

The buyer shortage that Rohrer sees has hurt company values in Las Vegas, according to a recent report from a business-sales Web site.

BizBuySell.com's analysis of more than 500 area businesses listed for sale on the site showed stark declines in sale prices for local companies.

The median asking price for a local business was $225,000 in the first quarter. That's off 10 percent from $250,000 in the fourth quarter, and down 37 percent from $299,500 in the first quarter of 2007.

Sales and profits among companies on the market in Southern Nevada also dropped -- an indicator that smaller businesses are selling more readily than their larger counterparts, said Mike Handelsman, general manager of San Francisco-based BizBuySell.com.

Local businesses listed in the first quarter posted median revenue of $385,000, compared with $509,500 a year earlier. Annual cash flow was $100,000, down from $135,606 in the first three months of 2007.

Business consultants cited several reasons for the decline in sale prices. Some factors relate to population trends. Others, like much of today's economic news, hark back to the faltering housing market.

First, the demographics.

As baby boomers race toward retirement, they're listing their businesses in ever-greater numbers, Handelsman said. And with a bigger supply of companies on the market, prices deflate. That's the case with Rohrer: She's listed Elegant Creations & Celebrations at $49,900 in hopes of retiring, but she said she could count the number of buyer queries she's had in the past two years on one hand.

Rohrer, whose 15-year-old company makes about $230,000 a year in sales, said she's not sure why so few prospects are biting, but experts partly blame the housing market.

For many business buyers, home equity traditionally composed a big portion of the cash they used to close a deal, said John Paglia, a finance professor at Pepperdine University in Malibu, Calif., and president and chief executive officer of Paglia Consulting Group. Since the real estate market peaked in 2005, though, local homeowners have lost tens of thousands of dollars in equity on average. The median local home price was $243,169 in March, down 20.3 percent from the same month a year ago, said the Greater Las Vegas Association of Realtors. That's meant less buying power for entrepreneurs hoping to scoop up established businesses.

Also, banks, bearing the fallout from exotic loans they made to homeowners, feel a little less charitable today. So it's tougher to borrow now for virtually any purpose.

"Banks are like turtles, and you know what happens when you scare turtles," said Roger Dunivan, a counselor with the Service Corps of Retired Executives, a group of volunteer business consultants.

The clients who visit the corps are having a harder time obtaining financing, Dunivan said. Through the U.S. Small Business Administration's express loan program, for example, business owners with a credit score of 640 to 650 could have borrowed $25,000 a year or two ago. Now, they need credit scores closer to 660 or 680, Dunivan said. Landing $50,000 demands a score of 700 or better.

And when less cash meets scarce financing, said Paglia, there's only one element left to adjust: the asking price.

Some business watchers also believe slackened consumer spending could be hurting the prices businesses command.

Because sales and income levels partly underpin business values, ebbing revenue and cash flow numbers can hurt a company's buyout prospects, Dunivan said.

Taxable sales across Nevada have fallen 2.3 percent since the beginning of the state's fiscal year July 1, as locals grapple with dwindling home equity, rising food and energy prices and high debt-to-income ratios.

Handelsman believes the valuation formulas that sellers use will feel downward pressure for the next few quarters. Paglia forecasts a drop lasting one to three years, depending on when the housing market recovers. Dunivan said he believes the local market could pick up by the end of 2009, as new megaresorts on the Strip open.

And though the river of boomers streaming into retirement will flow for years to come, rising unemployment and corporate downsizing could expand the pool of prospective buyers, as employees decide owning a business is a safer long-term bet than having a boss, Handelsman said.

Some businesses will weather the downturn relatively unscathed.

Companies providing health care services should fare well, because consumers get sick regardless of economic cycles, Handelsman said. Paglia noted that stores peddling alcoholic beverages and tobacco also post steady sales through good and bad times. Restaurants and other retailers of nonessential goods and services could feel a bigger valuation pinch in coming quarters, they said.

"It will come down to what housing is doing and how consumers feel about their wealth, and what other constraints consumers have in their budget, such as food and energy prices, that make them less likely to spend in the future," Paglia said.

Contact reporter Jennifer Robison at jrobison@reviewjournal.com or 702-380-4512.