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News From Touchstone Business Advisors
From time to time, Touchstone has new business listings, changes to existing listings or important new developments, which are first previewed to those valued clients, who have previously expressed an interest in a business acquisition or sale. If you have a business associate who would be interested in hearing about our services, listings and receiving our articles, please forward this newsletter and they will be able to sign-up for future notices. You can also keep abreast of these changes and download NDA forms and business profiles on our website: www.touchstonebiz.com |
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How will the Current Financial Environment Affect Business Transactions
The business for sale market has been aided in recent years by demographic trends, rising stock and housing markets and relatively easy access to credit. The decline of the housing market, subprime mortgage lending practices, bundled mortgage securities, credit default swaps and massive government intervention have changed the financial environment for business buyers and sellers. The general consensus is that new environment may be with us for some time to come, including:
· the financial crisis may induce a moderate recession
· the stock market may decline further or move sideways for a period of time
· unemployment may rise from current levels to 7-8%
· the housing market may take several years to recover
· access to business acquisition loans may be severely constrained
· tax rates, including capital gains, may be increased
In such an environment, will the business for sale market cease to exist? Of course not! The demographic trends favoring business transitions have not changed. Well-informed and properly prepared buyers and sellers, with the help of a knowledgable business broker, can continue to accomplish their goals of business ownership transition. Both buyers and sellers will need to be much more knowledgable about pricing, more flexible on deal structure, more informed about tax implications and more willing to include seller financing. Lending criteria will certainly be more rigid. Setting realistic expectations for deal terms and structure, preparing thorough loan applications and finding the right match of business with provable cash flow and financially qualified buyer with direct experience...will most often still lead to a favorable and timely transaction. Deviation from these optimum criteria will require more time, creativity, attention to pricing, terms/structure and more reliance on cash, debt assumption and seller financing. Out most recent transaction, in fact, was accomplished without any bank financing.
In the 1970's, the economy suffered a recession, interest rates skyrocketed, unemployment rose, we saw a housing crisis precipitated by the Savings & Loan meltdown and capital gains rates were more than twice current levels. This was before my time as a business broker, but history tells us that business transactions did not come to a grinding halt. On September 11, 2001, the U.S. was subjected to a sudden and adverse economic impact, but recovered relatively quickly. Just as we recovered from those financial upheavals, this too shall pass.
Warren Buffet is regarded by many as a financial wizzard. He is not sitting on his money, rather he is actively pursuing strategic transactions now when others are running for cover. His truisms are legendary, including: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." That certainly holds true today. Buyers should look for quality, sustainable cash flow and the history of how the target company faired in previous financially difficult times. Buffet is also credited with, "I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over." Both buyers and sellers need to be realistic in negotiating terms and structures that will have the best chance of meeting both parties objectives...and being consummated in a timely manner.
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Update on Other Touchstone Listings:
(see www.touchstonebiz.com for detailed information)
Breckenridge Restaurant/Bar Sold
Commercial Painting Company Sold
Niche Software Company Sold
RV Rental Company Sold
Niche Manufacturing Company Active Negotiable
- Patented Products, Real Estate Available
Truck Repair/Maintenance Company Active $ 750,000
- Full Service Facility & Mobile Service
Jewelry/Art Retail Store Active $ 275,000
- Great location, Sales Increasing
Women's Fitness Franchise Store Active $ 105,000
- #1 Franchise, Growing Membership
Day Spa and Salon Active $ 75,000
- Great Value and Upside Opportunity
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HOW CAN BUYERS AND SELLERS RESOLVE A DIFFERENCE BETWEEN OFFER AND ASKING PRICE?
Understanding the fundamental factors that influence a seller's determination of price and a buyer's market determination of value is a primary responsibility of the business broker. The gap can often be resolved by providing credible information to assist both sides to develop confidence in the economic value of the business. Creative deal structuring techniques can then serve to help buyers and sellers achieve their objectives. Business brokers can assist in this resolution by:
1. Preparing a comprehensive CBR that portrays all aspects of the business;
2. Collecting and recasting 3+ years of tax returns and financial statements that reflect the true activity of the business;
3. Obtaining Seller agreement to carry-back a note with right of offset providing a sort of warranty and level of confidence in the business' strength (also reducing the buyer's required equity investment);
4. Pre-qualifying the business for SBA financing and/or obtaining an independent 3rd party valuation;
5. Attracting multiple buyers and offers to validate the market's determination of value;
6. Suggesting alternative transaction strutures to meet Seller and Buyer objectives and minimize tax consequences;
7. Obtaining Seller agreement to provide extensive training, support and familiarization.
To learn more, contact Touchstone Business Advisors for resources to accomplish your business sale or acquistion goals.
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