June 20, 2009
Business sales are effected by the same supply and demand curves impacting every free-market commodity. Presently, the supply of businesses for sale is roughly the same as any time in recent history. However, demand for businesses is still relatively low. Uncertainty in the credit markets, the economy and in business in general, have limited the number of qualified buyers. So what does this mean in terms of your business value?
1. Buyers are looking for “cheaper” deals. Smaller deals under $250,000 and $100,000 down in order to limit risk are what is selling at the moment. Businesses priced from $250,000 to $5,000,000 are moving more slowly due to the credit crunch and increased risk.
2. Buyers are looking for “better” businesses. For most buyers, they are looking for a 25% or greater ROI — after you factor in a reasonable salary for their involvement in the business. For example, if a tobacco store sells for $200,000 and the buyer expects to earn $50,000 per year for working the store themselves, a buyer would expect to earn 25% of their investment (or $50,000) in addition to their $50,000 salary. Hence, this $200,000 investment must provide $100,000 of owner benefit to sell.
3. Buyers are moving “slower” than in the past. They are taking longer to put offers in, to execute due diligence, to obtain financing, etc.. A typical business sale used to take 4 to 9 months. Today, it will likely take much longer as buyers are much more cautious and unless seller financed, financing is much more difficult to find.
If you would like a market analysis of your business, please do not hesitate to contact me at 800-599-0503 or eric@bluechipbizsolutions.com.
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