Not only were valuation multiples down in 2008, but the number of businesses sold saw a 20% decline from 2007 to 2008, according to a report released by BizBuySell.com — the nation’s leading business for sale website.

This should not come to a surprise to business owners or M&A Industry professionals, but some credible data was just released including the following highlights:

• Revenue multiples on reported closed transaction from BizBuySell dropped only 0.3% (from 0.687 to 0.685)
• Cash flow multiples, on the other hand, experienced a more sizeable drop from 2.80 to 2.68 (4.5% decline)
• The most alarming trend was the 20% drop in sold businesses reported (from 1,514 to 1,232).

It is understandable that business owners are maybe waiting for an economic rebound not only with multiples, but their own cash flow as the most recent 12 months performance is the strongest indicator for small businesses.  If their businesses have been on the decline to market conditions, then their business valuations are likely to follow.  There are obviously many small businesses that are very strong, growing, cash flow positive, and top performers but many small businesses are struggling.

It is not doomsday though!  While this report confirms what most are seeing & feeling, business owners who have mapped out a legitimate Exit Plan strategy need to continue to execute with their plans.  Some owners considering sale are waiting, thus the supply for for-sale companies could come down.  With the aging population in the US combined with their desire for a second career in the form of business owners added into a still-active M&A environment, there is still great opportunity for patient sellers to negotiate a favorable deal under the guidance of a trusted advisory team (broker, lawyer, financial planner/banker) and flexibility to carry paper, ensure a successful transition, etc.

2009 should prove to be a challenging year for owners but one that should be tackled with vigor and persistency.  Those that can maintain and rebound once the storm calms will be in strong positions to exit under their own terms, now or in the future.

Added on 05/13/2009

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