Small business asking prices rise in Las Vegas

Las Vegas is showing signs of increasing value as the median asking price of a small business rose in the first quarter, a business-for-sale marketplace website reported.

The median asking price for 321 Las Vegas-based businesses listed for sale on BizBuySell.com is $242,000, a 16.3 percent increase from $208,000 a year ago, the online company's database shows.

It's positive news for Las Vegas' battered economy, BizBuySell general manager Mike Handelsman said from San Francisco.

"Sellers are looking more confident. It's definitely a lot tougher market than it was two years ago, but people feel it's on the rebound," Handelsman said.

Business owners in Las Vegas, on average, ask for a revenue multiple of 0.72 and a cash-flow multiple of 2.95, compared with 0.81 and 3.16, respectively, a year ago, BizBuySell reported. For the first quarter, businesses listed for sale in Las Vegas had a median revenue of $409,351, up from $366,969 a year ago.

Median cash flow, or the money that comes out of the business over the course of a year, was $100,000, compared with $96,790 a year ago.

Carlene Gaydosh, a certified valuation analyst with Kafoury Armstrong in Las Vegas, said the rule of thumb on business pricing is one times gross revenue, though other factors such as cash flow, payroll and growth potential come into play.

"You still need to drill down to look at the underlying economics of the business, the intrinsic value and the indicators," she said. "The country's debt is up, interest rates are likely to increase, inflation is a concern. So investors need a discount in value because of higher risk. I've had clients with ridiculously low offers because people are out there looking for deals and you can find them if you have cash. It's a buyer's market."

Las Vegas business listings include a Port of Subs shop for $239,000 and cash flow of $108,000; a 7-Eleven store with slot machines for $299,000 and cash flow of $150,000; and an auto body shop for $325,000 and cash flow of $175,000.

At 13.8 percent, Las Vegas' unemployment rate is running significantly higher than the national average. People who lost their jobs in the "downsized" corporate world need to replace their incomes, ideally at their accustomed level, Handelsman said.

"They looked for a job and can't get one," he said. "So they look at buying a business, which creates a job for them."

Small Business Administration lending decreased in 2009 from the previous year, so there's less capital for buying small businesses, Handelsman said. More sellers are financing their transactions now and lowering prices to attract more buyers, he said.

Jeff Nyman of First Choice Business Brokers in Las Vegas said almost all of his deals are seller-financed.

"The problem right now is buyers dried up, but now they're coming out of the woodwork and there's no financing available, so the sellers are carrying the notes," Nyman said. "The thing that hasn't hit yet is the commercial side. They've got buyers and they've got sellers, but no financing. I don't care what they say, banks are not loaning money."

While asking prices may be up, final closing prices are down, Nyman said. He estimated the average has fallen to about $185,000 from $220,000 a year ago. A hair salon on Sahara Avenue that once sold for $170,000 is now listed for $35,000.

"Business has dropped tremendously," Nyman said. "The biggest places are pizza places and hair salons."

The national business-for-sale market is improving slowly, but steadily, Handelsman of BizBuySell said. The number of closed transactions rose to 1,149 in the first quarter, up 0.3 percent from the year-ago period and up 6.3 percent from the previous quarter.

The median price dropped to $150,000 from $165,000 in first quarter of 2009, suggesting that buyers may have the upper hand in the current market, he said.

"People who are selling their business are generally lowering prices, and that helps the market," Handelsman said. "People are more interested at lower price levels."

Keith Easton of Easton Business Opportunities in Las Vegas said there are still deals being done, including two businesses he has in escrow, for $700,000 and $900,000.

"But will they get funded? It's all about banks and lending," he said. "They make it very tough on us. We don't spend our commission until they close."

Nyman said business is coming back. He met with brokers in markets such as Phoenix, San Diego and San Antonio who said they're getting higher multiples on net income. If people want to get into business for themselves, now is the time, Nyman said.

Robin Civish, president of Commercial Alliance Las Vegas and a local retail-market specialist, said developers, shopping center owners and retailers are facing perhaps the toughest economy ever to hit the valley.

"There's no denying that these are challenging times in our industry," Civish said. "But even a down market creates opportunities for someone. These conditions can also help good startup businesses set up shop in places and spaces they may not have previously been able to afford."

Thai Tran opened his second Dairy Queen in Las Vegas at Rainbow Boulevard and Robindale Road in March, investing about $550,000 in the business. His point-of-sale system alone cost $35,000.

" I was looking at McDonald's, Burger King, KFC, Wendy's," Tran said. "We ended up with Dairy Queen because I like the products."

The 27-year-old entrepreneur, who said he spent a day with billionaire investor Warren Buffett while studying finance at the University of Nebraska, said his goal is to open one Dairy Queen a year and build enough net worth to start his own fast-food franchise.

Nyman said he's seeing a lot of asset sales in which the business owner simply wants to pay off the lease and walk away.

"The problem is they overbuilt," he said. "We just did a sub shop and the seller walked away with $190 in his pocket. Pretty sad."

Contact reporter Hubble Smith
at hsmith@reviewjournal.com or 702-383-0491.