report: sales of bars increase, but sale prices plummet
While most businesses in the U.S. struggled to close on business sales or decided to hold off on selling until better economic times, the bar industry bucked the trend, reporting about 5 percent more closed transactions last year than in 2008, according to data from BizBuySell.com’s Insight Report. Closed business-for-sale transactions for all industries decreased by 29 percent in 2009 compared to 2008, but a recovery started in the fourth quarter and is expected to continue into 2010.
Bar sales increased slightly year over year, and there was an even greater increase in the quarter-over-quarter comparison: 38 percent comparing Q4 2009 to Q4 2008.
Additionally, other metrics have increased — ever so slightly — for bars. “While median sale price, median asking price and other multiples have generally gone down across the board for most industries, bars still had a slight 2 percent increase in median revenue in 2009 compared to 2008,” explains Mike Handelsman, general manager of BizBuySell.com.
But that doesn’t mean all is rosy for those looking to sell their bar: Sale prices of bars decreased much more drastically than other industries. “Nationally, the median sale price dropped 15.8 percent. For the bar industry, the median sale price dropped 43 percent,” Handelsman says. “With the financial challenges that this economy has brought to all of us, it's likely the case that this year there were many individuals who were a bit desperate to sell their bar businesses, and they had to lower their asking price in order to close the deal.”
What exactly is causing these declines (or barely-there increases) in metrics? Handelsman points to a few factors:
Supply and Demand: Bar sale prices decline when there’s not much demand. “When there are not many prospective buyers, buyers can offer a lower price,” he explains. “Because many laid-off individuals are contemplating a transition to entrepreneurship, the market is inundated with buyers right now, so you would think prices for bars and taverns would be rising. However, most of these buyers are simply kicking the tires and cannot actually complete a purchase. The number of buyers who can actually get a deal done remains small, and this is principally a result of the dearth of financing. As a result, it's a buyer's market for those who can get a done and they can offer less for a bar or tavern than they might have had to do in a more vibrant economy.”
Core Financials Struggling: Revenues are hurting, as is cash flow, Handelsman explains, which hurts a bar’s value.
Market Uncertainty: Usually buyers look at revenue and cash flow multiples for valuations, and if they can assume they will be steady and growing, they will offer a higher multiple. “Unfortunately, in this economy, we don't know when bar and tavern revenues will recover. As such, the multiples tend to be lower and that in turn lowers the business sales prices,” Handelsman says.
Wait and See: Bigger bars are waiting to sell their businesses until the market recovers, he says, and those who are selling now might be desperate and willing to accept a lower price. “The best time to sell is when you don't have to sell because you can walk away from a low offer; in this market, many sellers don't have that luxury.”
If you don’t need to sell immediately but would like to see what the market has to offer, Handelsman says there is no reason to hold off. “The market is pretty strong right now, and bar owners who list their businesses for sale may be surprised at the offers they get,” he says. “If they don't get an offer they are happy with, then they can wait to sell the business.” And in the meantime, always be on the lookout for ways to strengthen your business until the time is right to sell.