2021 was a very successful year for business sales in Florida. In fact, over the past year or so, we’ve seen primarily a healthy and growing market for small business sales here, as more and more people flock to the Sunshine State. In 2021, with the stabilization of COVID, we saw many businesses recovering from 2020, and healthy businesses had record sales in 2021. For all of the “numbers people” out there, here is a statistical breakdown of how 2021 compared to 2020 and 2019 for Florida business sales. Florida-specific numbers were sourced from the Business Brokers of Florida sold business database. This three year comparison is important, because it gives us a good idea of where we were pre-COVID, during COVID, and on the climb out of COVID.
Number of Businesses Sold
In 2019, we saw 1,315 businesses change hands in Florida, and then in 2020 there were only 1,011 sold. However, in 2021 the number of businesses sold rose steadily to 1,223. That is a increase of about 21%, which is only about 2% shy of pre-pandemic levels in 2019.
Roughly about 1/4 of our annual business sales are in the bar and restaurant industry. It is no secret that the hospitality industry took a huge blow in 2020, and many restaurants were forced to close their doors. However, in 2021 we have seen many restaurants and hospitality-related businesses make a full recovery back to 2019 numbers and beyond. In fact, Florida’s tourism and hospitality sectors soared in 2021, as visitors were drawn to the Sunshine State rather than traveling abroad. The biggest hurdles and inhibitors to even more growth in sales is the ongoing staffing issues that many of these businesses are facing.
Average Sold Price
For sold Florida businesses, the average sold price in 2021 was $630,374. In 2019 the same number was $444,658 as compared to the average for 2020 at $402,636. At a glance, one would think that the business sales industry in Florida is experiencing the same crazy boom that the Florida real estate market is seeing, but that is not really the case when it comes to purchase price. In small business sales, the purchase price is directly tied to the amount of money that the owner is making (seller’s discretionary earnings or owner benefit). So, even though we are seeing unprecedented buyer demand and a general rise in average sold price, our purchase prices won’t be artificially inflated just simply due to demand.
It is true that we have more buyers than ever shopping for businesses in Florida, and that quality businesses are selling quickly. It’s definitely a seller’s market, and a healthy business has a better chance of selling today than it did in 2020 or even in 2019’s robust business sales climate. After careful study and consideration of the businesses sold in 2021, we have come to the conclusion that the more likely scenario for this 57% increase in average sold price is that the businesses that are the most popular with buyers and the businesses that are actually selling are the larger and more sophisticated businesses.
We’ve seen a huge shift in the quality of business buyers over the past 2 years, and we have a larger demand for bigger small businesses. We see much more popularity with our middle-market listings than our smaller mom and pop shops on Main St. The buyers aren’t just owner-operators with a dream of entrepreneurship; we are seeing a huge influx of professionals leaving the corporate world who want to invest in businesses here in FL and we’ve seen a tidal wave of investment firms and private equity companies gobbling up these businesses in the multi-million dollar range. This demand for the higher-priced larger businesses will have undoubtedly pushed up the overall average sold price, and that is supported by looking at the 2021 numbers as compared to 2019, where there is still a 42% increase in sold price.
Average Seller’s Discretionary Earnings (SDE)
Of course, we cannot look at sold prices without examining the average seller’s discretionary earnings/owner benefit/cash flow/adjusted net (all different ways to describe the same number) that relate directly to those prices. Businesses are valued and priced based on a multiple of the owner benefit or SDE. So what we have found is what we would expect to see: the owner benefit average changes are directly related to the changes in sold prices.
In 2021 Florida saw an average SDE for sold businesses of $196,614. In 2019 it was $165,204 and in 2020 the average SDE for sold businesses was only $149,185. From 2020 to 2021, the SDE is up about 31% and from 2019 to 2021, SDE has risen by 19%. These numbers support the increases in average sold price for the same year comparisons.
You might notice that these numbers didn’t increase at the same percentages that the average sold prices did, and if the two are supposed to be directly linked together, then what is the reason for the discrepancy? Above we noted that the larger businesses were selling more in 2021. The most simple explanation of this is that the industry multiples that we use to value larger multi-million dollar companies are higher than the multiples we would apply to a smaller business. These industry multiples are derived from actual sold data, so we are confident that this supports the reasoning for the higher purchase prices we saw in Florida for 2021.
Conclusions
It is true that healthy businesses are selling at record prices, and we are only seeing this trend continue into 2022. There has honestly never been a better time for a business owner to sell their business. Buyer activity is off-the-charts high, and a business has the best chance of selling in today’s strong seller’s market. If you are a business owner who is thinking that now might be the time to sell your business, we’d be happy to speak to you (all conversations are kept strictly confidential) about how we can help.