Buying a Business
Cost to Buy a Business in Houston
Planning on buying a Houston, Texas business? Your first question will probably be "How much does it cost to buy a business in Houston?"
Luckily, the folks at BizBuySell.com have made some data available on what it costs to buy a business in Houston.
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. They also have many FSBO (for sale by owner) business-for-sale listings.
If you are looking to buy a business in Texas, check out the BizBuySell Texas listings to see the latest business-for-sale listings for Houston and other Texas cities.
Houston, TX Business Valuations
According to BizBuySell.com, the median asking price for an Houston business-for-sale listing in Q4 2008, the quarter when they most recently released their data, was $285,000.
That was based on 515 listings in the Houston-Sugar Land-Baytown, TX metro area. As such, some of the businesses used to derive the median valuation might be outside of Houston, but they are in the area and so are probably representative of Houston business valuations.
Remember 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 Houston business for much less. Having said that, some Houston businesses may cost much more.
Another thing you should know is that this is the asking price for an Houston business. Typically, when a small business owner lists a company for sale, they start with an asking price that is higher than the ultimate sale price. The sale-price-to-asking-price ratio varies considerably but typically might be between 0.85 and 0.90. As such, a business listed for $175,000 might sell for between $148,750 and $157,500.
If you are interested in trends in business-for-sale asking prices, here are the median asking prices for businesses in the Houston-Sugar Land-Baytown, TX metro area for the last 8 quarters.
Houston, TX Revenue Multiples
In the Houston-Sugar Land-Baytown, TX metro area, businesses will usually sell for 1.07 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 firm with revenues of $200,000 might list for $214,039. Remember, however, that this is only an average for revenue multiples in the area. Some entities will have higher revenue multiples and others will have lower revenue multiples.
Here is how median revenue multiples are trending in the Houston area, based on BizBuySell.com's quarterly reports.
According to BizBuySell.com, the median revenues for its business-for-sale listings was $400,444 in Q4 2008.
Cash Flow Multiples In Houston, TX
Another common method to value a business is through cash flow multiples.
For Q4 2008, the average cash flow multiple for businesses listed in the Houston-Sugar Land-Baytown, TX metro area was 3.70.
So, a company with cash flows of $120,000 might have an asking price of $443,479. That math only works if the business sells for the area's average multiple. Most businesses will not conform to industry- or area averages.
The table below shows how cash flow multiples are trending in the Houston area, based on BizBuySell.com's quarterly reports.
Flow Multiple
If you are interested in what cash flows are for a business in Houston, BizBuySell.com reports that the median cash flow for Houston area businesses was $102,365 in Q4 2008.
Things to Consider When Buying a Business in Houston, TX
Credit is tight in this economy. Given that banks may be unwilling lend you money for the purchase of a business, you may want to look for seller financing. When a seller gives you financing, it shows they have confidence in the business, as well as confidence in your being able to run the business well enough to pay off the seller note. This advice on financing a business purchase comes from Domenic Rinaldi, managing partner of Chicagoland Sunbelt, a leading business brokerage firm.
Business Valuations for Houston, TX Businesses
If you have a specific business in mind and want to look at comparables in the area, 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 published on a quarterly basis. If you find this data interesting, be sure to visit BizBuySell.com Insights Report for additional information.
Share this article
Additional Resources for Entrepreneurs