Is selling a business in tough times possible?
Should I buy a business in tough times?
With negative economic news grabbing the headlines in the United States, business owners may think it’s not a good time to sell their business. However, fortunately for owners looking to sell, that’s not necessarily the case.
Business sales are still occurring, with sellers capturing attractive prices and favorable terms. The critical piece, though, is structuring the deal properly.
Look at the Buyer’s credibility.
Of course, you want to find the best Buyer possible. Whether it’s an individual, another company, or a Private Equity Group, look for a potential Buyer with the right approach. The Buyer needs business acumen and significant assets to pledge as collateral or a committed fund. Additionally, they should be able to demonstrate business success.
With a proven, credible Buyer at the negotiating table, lenders are more likely to support the transaction.
Expect some Seller financing.
During a tight economy, the Seller often must share the risks with the Buyer and the lender to achieve the highest value.
In many instances, the value of a successful business exceeds the value of its fixed assets. In today’s tight lending environment, a Seller can still obtain a substantial value for the business. Still, the Seller may need to finance a more significant portion of the purchase price. Regardless of the capital structure or financial considerations, crafting a professional and creative deal structure is the key during a challenging economy.
Typically, Seller financing has been between 5% and 15%. In the current lending climate, Seller financing may range from 15% to 25%, amortizing over 10 years. A balloon payment is due between three and five years.
After the Buyer proves themselves in the business and shows that the debt payments are being made on time, the lender will generally refinance the Seller’s note. As a result, the Seller receives full payment within three to five years. Furthermore, the lender can loan more funds to a lower-risk borrower.
While the economy has put a crunch on available financing, it has not had a dramatic impact on the number of potential buyers. With the proper structure, deals are still getting done across the U.S.
If you have a question about selling or buying your business, give Andrew a call today at (916) 570 2674.
This article is reprinted as a courtesy of the International Business Brokers Association® (IBBA). IBBA is the largest international, nonprofit association operating exclusively for the benefit of people and firms engaged in various aspects of business brokerage and mergers and acquisitions.