Value of Los Angeles, Orange County small businesses up 32% since recession
We know that stocks and real estate values have ballooned since the Great Recession ended.
But how has the economic rebound impacted the worth of a small business in Los Angeles and Orange counties is?
I filled my trusty spreadsheet with transaction data from BizBuySell, an online service that facilitates small-business dealmaking and has tracked 66,000 purchases nationwide over the past 10 years. I compared pricing and company performance data, local and national, using averages weighted by sales volumes from the recessionary 2009 to 2011 years vs. the recent upswing of 2015 to 2017.
This data gives us a window into the ups and downs of business endeavors on the scale of mom-and-pop shops handling everything from retail and restaurants to service and manufacturing.
My spreadsheet shows a typical L.A.-O.C. small business selling for $189,753 in 2015-17, according to BizBuySell data. That was up 32 percent from the three years during and just after the recession. The national selling price was $210,780 in the past three years — up 36 percent from 2009-11.
Now increasing valuations by one-third ain’t bad. Yet this small business appreciation looks small compared to the surge in stock prices (up 97 percent, as measured by the S&P 500 index) or local housing values (up 47 percent, as measured by the L.A.-O.C. Case-Shiller index) in the same timeframe.
Let’s take a look at key factors driving the local increase in selling prices for small businesses, according to BizBuySell data …
Sales boost: Growing businesses get better pricing. The typical L.A.-O.C. small business that sold in 2015-17 had annual sales of $435,109, up 32 percent from the recession’s end. Nationally, sales at the mid-priced companies ran $476,852 — 35 percent higher than 2009-11.
Better cash flow: As recessionary competitive pressures eased, one measure of profitability rose: cash left after basic expenses. Local small businesses that sold had annual cash flow running $99,001 in 2015-17, up 23 percent from 2009-11. Cash flow nationwide ran $108,904 — up 28 percent.
“Profit” margins dip: Compare cash flow to revenues and you get one measure of “profit margin.” And it’s down, post-recession, for the businesses tracked. In L.A.-O.C., cash flow ran 22.8 percent of revenues in 2015-17 vs. 24.3 percent at the recession’s end. U.S. margins ran 22.8 recently vs. 24.2 percent in 2009-11. That could be a sign of challenging conditions for small business owners or it could reflect that businesses that sold were more frequently below-average performers.
Asking for more: The owners who wanted out certainly upped what they sought for their businesses as the economic rebound took hold. But the hikes were not as large as performance improvements. The typical L.A.-O.C. small business seller asked for $207,415 for their enterprise in 2015-17, up 16 percent from 2009-11. The locals were nowhere as aggressive as U.S. sellers who upped asking prices by 28 percent to $234,926.
As buyers pay up: Folks seeking businesses will pay a premium for fast growth. And with the recession a relatively distant memory, the ratios of selling prices to cash flows are up. The typical L.A.-O.C. buyer paid 1.92 times cash flow in 2015-17 for businesses sold vs. 1.79 times post-recession. And nationally, the price-to-profit ratio was 1.94 from the past three years vs. 1.82 times cash flow back in the recession.
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