Why Now Is the Time To Buy A Business
May 23, 2011 by Kevin Michael Gray
Why Now Is The Time To Buy A Business
Business owners who have survived the recession are bummed out, burned out and stressed out. They know it's not the best time to sell, and their business may not actually be listed, but if someone offered to put them out of their misery, many would jump at the chance.
It's a buyers' market, to be sure. Why?
1. Prices are low
2. In terms of profits, there’s nowhere to go but up
3. Financing is more available than you may think
Why are prices low?
Small businesses typically sell for a multiple of either historical cash flow or earnings before interest, taxes, depreciation and amortization (EBITA). For most businesses, the last three years don't paint a very good picture.
Take the neighborhood beauty salon for example. Before the recession, its average EBITA may have been $100,000 a year. Since salons typically sell for three to five times EBITA, that would translate into a selling price of $300,000 to $500,000. But luxury consumer purchases such as professional hair coloring and coiffing are the first to go down the drain in a weak economy. For those who've survived, it's likely been a close shave—bad news for them, but good news for a prospective buyer. For every dollar their EBITA went down, the sale price of their business has fallen three or five times more.
If you can prove to yourself that a company’s demise is primarily the result of the recession, its misfortune may be your fortune-in-waiting.
Nowhere to go but up
Some would see the glass half empty. An entrepreneur would see it as a glass that’s ready to be filled. Think, "ground floor opportunity.” Buying now puts you in a position to ride the upswing, when it comes.
Unless something fundamental has changed, such as... READ THE FULL ARTICLE
