Buying a Business

Cost to Buy a Business in San Jose

Considering purchasing a company in San Jose, California? You're no doubt wondering how much a typical San Jose, California business costs to buy.

Luckily, a company called BizBuySell.com has made some data available on what it costs to buy a business in San Jose.

BizBuySell.com is the largest online marketplace for business-for-sale transactions. Their listings include almost all of the available listings from business brokers nationwide. 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 California, check out the BizBuySell California listings to see the latest business-for-sale listings for San Jose and other California towns.

San Jose, CA Business Valuations

According to BizBuySell.com, the median asking price for an San Jose business-for-sale listing in Q4 2008, the quarter when they most recently released their data, was $260,000.

That was based on 161 listings in the San Jose-Sunnyvale-Santa Clara, CA metro area. Many of the businesses in the dataset are outside of San Jose, but they are in the area and so are probably representative of San Jose 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 San Jose business for much less. The flip side is that some San Jose businesses may cost much more.

Another thing you should know is that this is the asking price for an San Jose business. Typically, when a business owner lists a company 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. As an example, a company listed for $275,000 might sell for between $233,750 and $247,500.

If you are interested in trends in business-for-sale asking prices, here are the median asking prices for companies in the San Jose-Sunnyvale-Santa Clara, CA metro area for the last 8 quarters.

Quarter
Median Ask
Q1 2007
$189,500
Q2 2007
$239,000
Q3 2007
$265,000
Q4 2007
$250,000
Q1 2008
$249,000
Q2 2008
$249,500
Q3 2008
$250,000
Q4 2008
$260,000

Revenue Multiples In San Jose, CA

In the San Jose-Sunnyvale-Santa Clara, CA metro area, small businesses will usually sell for 0.82 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 $164,104. Remember, however, that this is just an average for revenue multiples in the area. Some firms will have higher revenue multiples and others will have lower revenue multiples.

Here is how median revenue multiples are trending in the San Jose area, based on BizBuySell.com's quarterly reports.

Quarter
Revenue Multiple
Q1 2007
0.85
Q2 2007
0.79
Q3 2007
0.71
Q4 2007
0.68
Q1 2008
0.74
Q2 2008
0.78
Q3 2008
0.80
Q4 2008
0.82

According to BizBuySell.com, the median revenues for its business-for-sale listings was $425,000 in Q4 2008.

Cash Flow Multiples In San Jose, CA

Another useful technique to value a business is through cash flow multiples.

For Q4 2008, the average cash flow multiple for listed businesses in the San Jose-Sunnyvale-Santa Clara, CA metro area was 3.47.

So, a business with cash flows of $120,000 might have an asking price of $416,356. That's if the business fits the area average. The distribution on revenue multiples for a given set of businesses can be quite wide-ranging.

The table below shows how cash flow multiples are trending in the San Jose area, based on BizBuySell.com's quarterly reports.

Quarter
Median Cash
Flow Multiple
Q1 2007
2.91
Q2 2007
3.23
Q3 2007
3.00
Q4 2007
2.98
Q1 2008
3.35
Q2 2008
3.28
Q3 2008
3.42
Q4 2008
3.47

In case you were wondering what typical cash flows are for a business in San Jose, BizBuySell.com determined that the median cash flow for San Jose area businesses was $100,000 in Q4 2008.

Tips for San Jose, CA Business Buyers

If you are looking to buy a business, be sure to contact business intermediaries who represent selling businesses within your targeted market. They will notify you of available companies that meet your criteria and qualifications. Most business brokers or intermediaries work for the seller and are paid by the seller. That means you can enjoy the luxury of their services at no cost. This helpful advice was provided by Domenic Rinaldi, managing partner of Chicagoland Sunbelt, a leading business brokerage firm.

Business Valuations for San Jose, CA 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 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 more information.

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