SMALL BUSINESS : The Little-Company Business Doing Better, Says Broker Network

When it comes to small companies, it’s a seller’s market, according to data compiled by a network of brokerages that specializes in buying and selling businesses.

VR Business Brokers, a nationwide network based in Newport Beach, found that the average prices of small businesses sold last year by its 57 brokerages was 8% higher than the year before.

“This indicates that businesses are doing better, because there is a direct relationship between sales price of a business and its profitability,” said Donald B. Brown, president of Bay Shore Enterprises Inc., a Huntington Beach-based franchisee of VR Business Brokers.

Brown said his company can testify that Orange County business prices in 1993 were similar to those nationwide. “There’s not a lot of of regional variation in the figures,” he said.

Food services--doughnut shops, ice-cream shops and catering businesses--fared well, selling 29% faster than the average business, the survey shows. Because of their recent popularity, espresso bars “are particularly hot,” Brown said.

Video store sales, however, slumped last year. “There has been an over-saturation of video stores,” Brown said. “Also, big chains such as Blockbuster have really hurt the independents.”

Not surprisingly, the more generous the financing terms offered by the seller, the easier the sale. Sellers who “took back” part of the loan had a much higher success rate than those who required all cash.

“In the selling of small businesses, there is very little bank financing available,” Brown said. “It’s a bit easier for someone buying an already established business rather than starting from scratch to find a lender. But lenders are still reluctant to give financing to a new owner, even if the prior owner has a proven track record.”