Right time to buy a business
Is now the right time to buy a business?
You wouldn’t think that now is a good time to buy or sell a business. However, even in the midst of a recession the timing might be just right, creating opportunity for small business owners looking to retire and inspiring entrepreneurs looking to control their future.
Why it’s a great time to buy
More sellers are willing to consider seller financing. If you have had difficulty getting a traditional bank loan to buy a business, seller financing could be an option to discuss with your broker and the business owner. Seller financing differs from a traditional SBA loan because the seller essentially extends credit to the buyer against the purchase price of the business. This allows more flexibility with payment options, which is good news for the buyer.
Baby Boomers are retiring. For many boomer business owners it is retirement that is driving them to sell, not the economy. In fact, sellers looking to retire are choosing to sell while their business is showing a profit – showcasing that despite the economy, their business is going strong.
In contrast, some baby boomers that are retiring (or being retired) from their corporate America jobs are looking for a less stressful situation and a way to have more control over their future earnings. Social security alone isn’t enough anymore, so boomers are buying businesses that will give them an additional income stream but conforms to a more relaxed lifestyle.
Taking over a business when business is slow is a great time to learn the ropes in preparation for when the economy takes off again.
Why selling is a real option
Serious sellers are out there. Not all small business owners are prepared to sell, they’ve decided to ride out the economy, which means those sellers who are committed to selling will have less competition. Buyers know that businesses for sale now are serious about striking a deal.
People are making a switch. Unfortunately with a poor economy come job layoffs. Many people who have lost their jobs and even those that fear job loss are choosing to explore an alternative to traditional employment by going into business for themselves. Today’s recession can be a tough time to start a business, but buying an existing business lowers the risks. And if a seller can offer seller financing, they will be in a great position to get their business sold at a good price.
Some businesses aren’t affected by the economy. Service industries are faring much better than retail businesses and are still considered to be a good investment for buyers. In addition, businesses in the health or medical field, especially companies dealing with aging adults are going to be in demand for quite some time so the growth potential is a significant selling point. But the bottom line to remember is that regardless of industry, the businesses that will sell are those that have organized books, show a consistent profit and growth potential.
What you’ll need
Whether you are looking to buy or sell a business, working with a team of professionals is essential to your success. Working with a certified business broker can help separate fact from fiction when you are considering buying or selling a business. Your broker can also connect you with real opportunities and offers. In addition to a broker, enlist your attorney and accountant to help you wade through financial records, insurance policies and other items critical to a successful business.
Once you have your team in place, it’s now time for you to become “Buyer Ready”.
What does “Buyer Ready” mean?
At a minimum it means have a resume, checking your FICO score, credit report and building a personal financial statement. A resume is required if you intend getting an SBA loan. SBA lenders now want to make sure you have the right management experience for the business you want to buy. If you want the seller to carry finance or get an SBA loan, your Credit Score needs to be about 700 or more. Similarly, get a copy of your credit report to make sure there are no mistakes on it. Imagine spending hours finding and negotiating the perfect business you want to buy, and asking the owner to carry finance. He then asks for a copy of your credit report so they can decide if you’re a good credit risk, and the report shows an inaccuracy. The seller then decides to kill the deal as they are not willing to extend credit to you. Finally, a personal financial statement will also be required so having this organized is one less thing to worry about later on in the buying process.
Remembering that there is more than the state of the economy at play when it comes to buying or selling a business can position you to start your new career as a business owner or to hand off the business and enjoy your retirement years.
If you’d like more information, feel free to get in touch with me for a quick consultation. We’ll discuss your particular business, what’s important to you and make a plan for those first few steps.