Anyone who wants to buy a business must address the important question of when to make the purchase, and like most things in life timing is a critical factor that can determine the ultimate success or failure of the endeavor. Economists all agree that recessions and "down turns" in an economy are "normal" and that by combining a study of past events together with current leading economic indicators, it is possible to create a fairly reliable timeline for predicting general economic "recovery." Similarly at Vested Business Brokers, we are in a unique position to predict the best timing to buy a business, particularly during a slow down, because we are constantly assessing historic small business sector trends together with current "Main Street" market conditions.
On a daily basis, we review our database and track the activities of our 50,000+ registered business buyers who are actively searching to buy a business and our 3300+ sellers who have requested our help in selling the small businesses that we currently list for sale in our active listings inventory. This tracking and subsequent analysis invariably leads us to seeing trends that we normally share with our registered business buyers to help them navigate through the process that leads to successful business sales. Today, in an effort to help you reach the right decision concerning your own plans or aspirations to buy a business, we would like to share publicly the trends that have become apparent at Vested since the current recession began to affect the small business sector of the American economy.
We began to register the effects of the current economic down turn within the small business sector beginning in January, 2009, when the first of five significant trends became apparent.
There has been a tremendous and steady increase in the number of new Financial Services Sector buyers entering the system and the majority of them have recently lost six-figure income. Overwhelmingly, these new buyers all have one characteristic in common: Rather than attempting to acquire a new position within an increasingly shrinking job market, they desire to "buy an income" by purchasing an existing profitable business.
To purchase an existing profitable business, all business buyers must conform to certain pre-requisites, foremost of which is the immediate availability of down payment monies (typically forty to fifty percent of the selling price of a business) in the form of liquidity or through pre-arranged bank loans or lines of credit. The amount available for down payment determines the asking price level where a buyer should begin the search to buy a business. Business buyers must bear in mind that the down payment amount typically declines over time because the business buyer will also be using the funds to cover expenses during the lifetime of the search.
This means that the longer it takes to complete the purchase process the more the highest asking price the business buyer qualifies for diminishes. In other words, as a buyer depletes available cash, the price of businesses for sale under consideration falls, and so ultimately, does the level of income the buyer will be able to realize upon completing the purchase. This depletion of down payment monies is understandable given the recent general reticence of all Americans to make any type of purchase despite the fact that it may be self-defeating not to act.
Vested has received a record number of Letters of Intent from February through September, 2009. (With a Letter of Intent, a registered buyer makes a formal declaration of intent to buy a business based on the outcome of the due diligence process, and secures a waiting period from the seller by making a "good faith" deposit.) This means that more buyers than ever are committing to seriously investigate purchasing businesses for sale.
The ratio of the number of Closings to the number of Letters of Intent did not increase proportionately until the end of June, 2009, when businesses for sale began to close steadily again. We can easily understand this because up until now buyers have been holding back from closing on buying a business, thinking that by waiting they may be able to reduce the price or hold out until general business conditions improve. This trend has now reversed and, for example, we have had more successful closings on businesses for sale this past July than in any other July since we started Vested Business Brokers almost eight years ago!
Sellers are offering seller backed financing at unprecedented levels and at unprecedented interest rates that rival even the best financing that used to be available through sources like banks whose loans are guaranteed by the Small Business Administration. Most sellers are now offering financing programs for up to fifty percent of the selling price spread out over five to ten years with single digit interest rates.
Based on the trends we have described above, we believe that buying a business right now is the best time to buy a business. To recap, following the steady influx of newly registered buyers there was a record number of Letters of Intent submitted and a temporary slowing of customary closing rates on businesses for sale that has since reversed. We believe that the diminishing amount of buyers' down payment monies available coupled with unprecedented levels of seller backed financing has swung the market back to a very favorable position for buyers who are ready to capitalize on the situation.
The biggest errors in business occur when business people get caught with "their pants down" and they have to scramble to make up for lost time all the while fretting that they may have missed an outstanding business opportunity. We would like a chance to speak with you directly if you are "on the fence" concerning whether or not to buy a business or are uncertain about the timing of your acquisition. A "no obligation" consultation with one of our Senior Business Brokers could be just what you need to analyze your personal situation and to help you on your way to the new life you have been envisioning. Call us at 1(877) 735-5224 and we will arrange for one our business brokers from your local area to call you today.
If you feel you are ready to buy a business without having a business broker consultation first, you can browse through our listings of businesses for sale on our Home Page or Buy a Business Page and then register to become a business buyer at no charge. A registered business buyer agrees not to share any confidential information we give them about a listing and is permitted to view all of the financial details of a given business for sale, as well as receive the address of businesses for sale to do a "drive by." You can register by signing our confidentiality agreement electronically, or you can print out the agreement and fax it to our corporate office.
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