20 Mar The Average Price of a Business – 1962 versus 2010
The following refers to a recent survey by BizBuySell, using their data. This survey is interesting reading and very informative. BizBuySell is providing a valuable service to the business brokerage industry by promulgating this data.
I began my business brokerage career in 1963 in Anaheim, CA. The average sales price of a business in that year was approximately $15,000. That doesn’t sound like a lot, but using an inflation table, that would be approximately $105,000 in 2010 dollars. Our minimum fee was $1,000 – today (also in 2010 dollars) it would be a $7,000 minimum. However, shortly after I joined the firm, it was raised to $1,500, and it is now 2012. What is your minimum fee today?
According to the BizBuySell data, the median selling price in 2010 was $150,000 and in 2011 it was $155,000. Using the inflation table, our $15,000 average sales price would be $107,000 in 2010. There is a difference between median price and average price, but it would appear that the selling price in today’s economy is considerably higher than the inflation increase would account for. However, it is much lower than I would have guessed. My guess is that a lot more sales would take place if business brokers listed businesses in the $100,000 to $200,000 range. I remember when I first started in the business that if a colleague in the office brought in a listing with a $22,000 price, it was big time. Yesterday’s middle market!
We would also recommend a $15,000 minimum fee, at least. We almost always based our minimum fee on the average, so using the 2011 median selling price; it would now be $15,500. I can remember when my mentor and broker raised the minimum fee by doubling it from $500 to $1,000. We thought that was the end of our business brokerage careers, but after a few weeks no one gave it a thought.
When we first got into the business, we were taught to tell the seller the following when he or she asked: “What do you think my business is worth?” “Mr. Seller, you’re placing me in a no-win situation. If I give you a price high enough that you might consider selling, and it doesn’t, we’re both going to be unhappy. On the other hand, if I give you a price too low you’re going to throw me out the front door. You must have a price in mind, let’s start with that.”
That would never please most of the business brokers today, but it worked for us for years.