To illustrate the value provided by trend data, as well as other factors which should be taken into account by prospective buyers, we will walk you through the most significant business sales trends of 1995 and discuss whether they should be relied upon as primary motivators in the decision-making process.

Based on the franchise network's yearly listings of thousands of businesses for sale, VR Business Brokers has been compiling and releasing trend information to government, business, and media leaders since 1992. The highlights of 1995, which are based on actual sales of businesses by the VR Business Brokers national franchise network, show an astonishing 500% increase in the sale of coffee/espresso houses in 1995, making coffee/espresso houses the third-best-selling business category. Other sales leaders in business categories last year relative to 1994 were cafe and coffee shops, cleaning service businesses, and manufacturing companies.

Another noteworthy change from the previous year is that the average down payment on a business purchase increased by 16% in 1995, though this was accompanied by a trade-off for buyers. Buyers, in effect, made larger down payments in exchange for sales prices which averaged 2% less than those generated in 1994, resulting in a better ratio of sales price to net profit. In fact, buyers paid 15% less for businesses with the same net profit as those that sold in 1994. The average sales price of a small business in 1995 handled by the national business brokerage network was $147,000, with buyers making an average $81,000 down payment.

Broken down into major industry categories, the following categories experienced an increase in the percentage of businesses sold within the franchise network in 1995, relative to their own percentage share of the network's sales in 1994: restaurants, up 1%; miscellaneous food service, up 8%; cleaning operations, up 94%; retail businesses, up 2%; and manufacturing, up 52%.

Those industries with fewer sales were cocktail lounges/taverns/bars, down 3%; fast food, down 20%; markets, down 23%; liquor stores, down 25%; service businesses, down 1%; and distribution/wholesale, down 15%.

Marking it as the top selling business category in 1995, more manufacturing companies were sold last year than in either 1993 or 1994, accounting for 7.6% of VR Business Brokers' sales. Manufacturing was followed by auto/truck/cycle maintenance, coffee/espresso houses, distribution/wholesale and sales of convenience stores.

ESPRESSO TREND HOT

Every so often a new consumer trend changes the landscape of business start-ups and business sales. According to VR Business Brokers' network statistics, in the mid-1990s it is the popularity of specialty and espresso coffee. "A couple of years ago yogurt shops were popular, prior to that tanning salons were a hot commodity, and in the mid-8Os video stores were in demand because of the increasing number of households with VCRs," states Gunnvor Tviedt, owner of the Seattle, Washington-based VR Business Broker franchise office.

1995, continued consumer consumption of gourmet coffee led to a five-fold increase in the number of coffee/espresso houses sold in the VR Business Brokers franchise network. This growth is consistent with statistics by the Specialty Coffee Association of America which states that retail sales of specialty coffee increased to $1.5 billion in 1993 from $760 million in 1980. The Association also states that 31% of all consumers purchased specialty coffee in 1992, compared with only 22% in 1990.

Every so often a new trend changes the landscape of business sales.

As the downsizing of corporate America continues, many displaced executives and mid-level managers are seeking the opportunity to own their own business -- but not just any business. They look for businesses that can afford them respectability within their circle of friends, lasting financial security, and high profit margins.

America's economy, contrary to public opinion, still includes an abundance of small manufacturing companies which serve stable markets or niche markets. These businesses often carry very attractive profit margins, but because of the specialized markets they serve or because of their unique product line, they can be hard to value. That's when the in-depth and extensive database of actual closed sales transactions compiled by national business brokers franchises such as VR Business Brokers can be of incomparable benefit in determining the value of manufacturing businesses and the specific sales trends in that industry.

In addition to selling at a 52% higher rate in 1995 relative to 1994, two other significant trends should be of interest to potential buyers of manufacturing businesses. First, manufacturing businesses continued to experience the greatest demand from prospective buyers. "A significant number of prospective business buyers are looking for manufacturing companies, particularly those with proprietary processes and equipment. In that arena, there are definitely more buyers than businesses for sale," states Ron Woolworth, owner of the Fort Collins, Colorado-based VR Business Brokers franchise office.

Secondly, though average sales prices across all business categories decreased by 2%, the average sales price of manufacturing businesses rose by 83% to $419,000. Woolworth states that this increase symbolizes a premium allotted to manufacturing businesses and a good ratio of sales price to net profit.

MIX DATA WITH CAUTION

Prospective buyers of businesses, however, should take great caution when incorporating trend data into their decision-making process. Sure, it might seem rational to invest in coffee/espresso house or manufacturing business this year, given the growth of those two categories last year. And consumer trend data alongside demand for those businesses do quantify the marketplace's ability to sustain profitability. But should trend data be the primary method for choosing a business to purchase?

Prospective business buyers should take stock of their interests and talents, as well as their management style, and then match them to a specific type of business. Indeed, the golden rule in buying a business is "know thyself and know thy business". And to do this correctly, prospective buyers should seek the assistance of a professional business broker. A professional broker can help the prospective buyer look beyond last year's trends and match them with a business that is right for them and one that can prosper under their ownership.

Trend data is important but should not be the sole basis for your decision.

According to Steve Benson, director of support for the national VR Business Brokers franchise, "Less than 1% of buyers buy the business they call to inquire about and less than 30% buy a business in the same category they originally had in mind. A business broker helps you to look at the big picture and identify a business that makes the most sense for you. " In fact, a good business broker will conduct a thorough "prospective business owner" interview that covers everything from the prospect's interests, needs, and financing opportunities to explaining each step of the buying process.

Trend data does play an invaluable role in revealing consumer behavior and the market potential of a particular type of business. However, trend data should never be the sole nor primary criteria for a prospective business buyer.

Les Duryea is co-owner of VR Business Brokers. For more information, call 800-377-8722 or send e-mail to vrbizbkr@ichange.com.