With the economic news in the headlines recently, it's not surprising that many businesses owners think it may not be a good time to sell their business. But fortunately for owners looking to sell, that is not necessarily true.
Business sales are still taking place with sellers capturing attractive prices and favorable terms, when the deal is structured properly and here's why:
Layoffs and downsizing increase the pool of potential buyers
Pricing formulas for many businesses do not change with a down economy
Owners with good businesses often postpone selling in a poor economy
This results in a larger pool of buyers competing for a smaller number of good businesses.
Other considerations:
Commercial Lending Environment Improving - October 1, 2009 marked a significant milestone in the business lending environment when the Small Business Administration revised its "Standard Operating Procedures" and removed the very restrictive "Good Will Cap" that was instituted at the peak of the credit crisis. This is great news for anyone interested in selling or buying a business.
Favorable Capital Gains Rates: Capital gains rates are at near historic lows of 15%, for now. Current tax law expires in September, 2010, and many experts believe the current administration will make good on its campaign promise to raise capital gains. This can have a dramatic effect on the after tax proceeds many business sellers will realize. It can take four months to a year to sell the average business - sometimes longer. For those business owners thinking of selling, beginning the process now could mean greater net proceeds at closing.
What About Seller Financing...is it necessary? - No, but some seller financing can give your business a decided advantage in the marketplace.
In today's tighter lending environment, if the seller adds a small percentage of seller financing to the deal structure there is a greater chance of having a lender support the transaction. In addition, buyers have increased comfort levels which can result in multiple offers on the business and higher selling prices.
As an example: A seller note of perhaps five to fifteen percent may be amortized over 10 years with a balloon payment between three and five years. After the buyer has proven itself in the business and shown that debt payments will be made, the lender will generally finance the seller's note. As a result, the seller receives full payment within three to five years and the lender gets to loan more funds to a demonstrated lower-risk borrower.
Regardless of the capital structure or finance considerations, professionally crafted and creative deal structuring is the key.
For a confidential discussion regarding todays market and how it relates to your business sale, call or email today.
