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. But fortunately for owners looking to sell, that’s not necessarily true.
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, significant assets to pledge as collateral or a committed fund, and the ability 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 is greater than the fixed assets. In today’s tight lending environment, a seller can still get a strong value for the business, but the seller may need to finance more of the purchase price. Regardless of the capital structure or financial considerations, crafting a professional and creative deal structure is the key during a difficult economy.
Typically, seller financing has been between five percent and 15 percent. With the current lending climate, seller financing may approach 15 percent to 25 percent, amortizing over 10 years with a balloon payment 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, and 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 right 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, non-profit association operating exclusively for the benefit of people and firms engaging in the various aspects of business brokerage and mergers and acquisitions.
