Archive for January, 2009

Don’t Bother Trying to Sell Your Business in this Economy

Thursday, January 15th, 2009

Well, not so fast.  Selling just about anything in this difficult economy is tougher than it was a few short moths ago, and selling whole businesses is no exception.  But among the gloom, deals are still happening.  Here’s a little of what we’re seeing:

Buyers with Cash

Many if not most business acquisition involves some amount of bank financing.  And, ot understate by a lot, banks have put a damper on lending.  But not all deals involve bank financing.  Buyers with cash are still buying.  The more cash a buyer has available for the acquisition, the more likely the deal will get done.

Seller Financing

Understandably, sellers don’t like to take back paper.  Equally understandably, buyers love to buy with seller provided financing.  The reality today is that more sellers have to provide more financing to make deals happen.  Of course sellers don’t want to hear this.  But there are some good reasons to take back paper, not the least of which is doing so will make the deal more likely to close.

Our advice:  Be more open to taking more of the purchase price over time.  But at the same time, try to get more security on the loan that you are, in essence making.  Try for a personal guarantee (the bank certainly would insist on a guarantee).  Also, try for specific collateral like a rental property or other tangible property the buyer can use to secure the loan.  The more collateral the more motivated the buyer will be to make the business work (and keep his property from being forfeited).


The last thing a seller wants to hear is that his business is worth less than he thinks it is.  Here’s the bucket of cold water:  Valuations have come down with the economy.  Buyers are looking for a return on their investment that is in proportion to the perceived risk.  Perceived risk is higher now for just about any business than it was before the economy went south.  Most venerable public companies are selling for big discounts as compared to what they were selling for 6 or 8 months ago.  So buyers expect smaller privately held firms to sell for lower prices as well.

Couple this with the fact that most buyers out there, at least those capable of making a deal, are largely cash buyers.  Cash buyers rightly feel that they are entitled to a better price because they have cash and can spare you the uncertainties and overall unpleasantness of waiting for a yes from a bank that may never come.

On the Bright Side…

Lots of would be business sellers have decided to hold off on selling until the economy improves.  Now with the smartest economists in the country disagreeing on the whether the economy will get worse or better of the next couple years, we’re not even going to venture our opinion as to whether waiting makes sense.  We can say that the competition is lighter because so many would be sellers are holding back for now.

I think we’ll stay with the advice on the article in this blog When is the right time to sell? that argues “don’t bother trying to time the market”.  Sell when it makes sense to you for other reasons than timing.