Buying a Business
Cost to Buy a Business in Detroit
Planning on buying a Detroit, Michigan business? Your first question will probably be "How much does it cost to buy a business in Detroit?"
Fortunately, the team at BizBuySell.com has made some data available on what businesses are going for in Detroit.
BizBuySell.com is the largest online marketplace for business-for-sale transactions. The vast majority of business brokers in the country put their business listings on BizBuySell.com. In addition, many business owners who are selling on their own, without a broker, will place listings on BizBuySell.com.
If you are looking to buy a business in Michigan, check out the BizBuySell Michigan listings to get instant access to business-for-sale listings for Detroit and other Michigan municipalities.
Business Valuations in Detroit, MI
According to BizBuySell.com, the median asking price for an Detroit business-for-sale listing in Q4 2008, the quarter when they most recently released their data, was $231,000.
That was based on 174 listings in the Detroit-Warren-Livonia, MI metro area. As such, some of the businesses used to derive the median valuation might be outside of Detroit, but they are in the area and so are probably representative of Detroit business valuations.
Note that this is the median asking price for a business. If you are in the market to buy a company, you may be able to buy an Detroit business for much less. The flip side is that some Detroit businesses may cost much more.
Importantly, this is the asking price for an Detroit business. Typically, when a business owner lists a business for sale, they start with an asking price that is higher than the eventual sale price. The sale-price-to-asking-price ratio varies considerably but typically might be between 0.85 and 0.90. In other words, a business listed for $100,000 might sell for between $85,000 and $90,000.
If you are interested in trends in business-for-sale asking prices, here are the median asking prices for businesses in the Detroit-Warren-Livonia, MI metro area for the last 8 quarters.
Detroit, MI Revenue Multiples
In the Detroit-Warren-Livonia, MI metro area, businesses will typically sell for 0.91 times the selling company's revenues. That was the mean revenue multiple for Q4 2008 in this area of the country.
In other words, a business that has revenues of $200,000 might list for $182,995. Keep in mind that this is in fact an average for revenue multiples in the area. Some businesses will have higher revenue multiples and others will have lower revenue multiples.
Here is how median revenue multiples are trending in the Detroit area, based on BizBuySell.com's economic data.
According to BizBuySell.com, the median revenues for its business-for-sale listings was $349,000 in Q4 2008.
Cash Flow Multiples In Detroit, MI
Another popular way to value a business is through cash flow multiples.
For Q4 2008, the average cash flow multiple for businesses listed in the Detroit-Warren-Livonia, MI metro area was 3.48.
So, a business with cash flows of $120,000 might have an asking price of $418,003. That's if the business fits the area average. Cash flow multiples can vary considerably based on many factors.
The table below shows how cash flow multiples are trending in the Detroit area, based on BizBuySell.com's quarterly reports.
Flow Multiple
If you are interested in what cash flows are for a business in Detroit, BizBuySell.com determined that the median cash flow for Detroit area businesses was $82,264 in Q4 2008.
Tips for Detroit, MI Business Buyers
Before you start shopping for a business to buy, establish your acquisition criteria. It's important to define the parameters of your search. Include geographic requirements, criteria on the transaction size, and other business attributes that are important to you. Having set criteria will help you demonstrate that you are a thoughtful and committed buyer. It will also streamline your business buying process. This helpful advice on how to buy a business comes from Domenic Rinaldi, managing partner of Chicagoland Sunbelt, a leading business brokerage firm.
Business Valuations for Detroit, MI Businesses
If you have a specific business in mind and want to find out how much a business is worth, we recommend the BizBuySell.com Business Valuation Tool. You can refine the dataset that generates business valuations to meet your specific needs, and access to the tool is very affordable -- less than $100.
More Information on BizBuySell.com's Quarterly Reports
The BizBuySell Insight Report is a nationally-recognized economic indicator that tracks the health of the U.S. small business economy. If you find this data interesting, be sure to visit BizBuySell.com Insights Report for additional information.
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