GlobalBX

Plenty of Economic Challenges
The Dow Jones Industrial Average continues to show erratic behavior and the unemployment picture remains bleak despite recent government intervention.  In spite of disappointing economic news that never seems to end, there are still some terrific opportunities out there for entrepreneurs who want to buy an existing small business.  Uncertain times for some can be advantageous times for others—it’s all in how you approach the situation.  Here are five secrets to finding that great business.  Of course, the publication of this article sort of blows the cover off that, right?  Well, try to keep it under your hat, if you can.

1. Hunt down a recession-proof business
Even in poor economic times, plenty of businesses stay ahead of the game—and some even do better.  By choosing a business in a field whose products or services are in demand no matter what the housing or job markets are doing, you will be making a smart decision.  Here are just a few areas worth considering:

• Food—Everyone needs to eat, and this industry has wide-ranging opportunities that include everything from wholesale or retail groceries to fast food restaurants.  When people have little money to spend on luxuries, they will cook more meals at home and eat out at less-expensive places.
• Home maintenance—This sector includes appliance repair, since people are more interested in fixing what they have rather than buying a replacement item, and also structural repair (roofs, foundations, driveways and sidewalks, etc.), where waiting too long to solve a problem will eventually cost a homeowner a whole lot more money.
• Debt collection or legal services—Whenever times get tough for consumers, it’s usually a boom time for anyone looking to chase down past-due bills and help prepare for evictions and bankruptcies.  While it may seem ghoulish on the surface, someone has to do the work.  The right opportunity can be very lucrative.
• Healthcare—This is a wide-ranging sector that encompasses everything from selling first-aid kits to providing emergency care through the ownership of a walk-in clinic or an ambulance service.  You might also toss in eldercare, since the population will continue to age regardless of the fiscal health of the country.

2. Buy the business with (mostly) cash
One of the truths of the Great Depression was the saying, “Cash is king.”  In a deflationary environment, the money you hold today will inevitably be worth more tomorrow.  But even when deflation is only a rumor on the horizon, or even nonexistent, the ability to do a deal without having to rely on financing gives you tremendous leverage over a buyer.  Even if you don’t have the entire purchase price in cash, the advantage of financing only a small percentage of the transaction is highly beneficial.  This leads directly into the next secret.

3. Have the business seller carry a note
Assuming you come up with only a portion of the asking price, having the seller finance the balance allows you to enjoy a major benefit.  Uncertain times usually cause credit markets to freeze up.  Banks are afraid to lend money because it’s more difficult to gauge who is a good credit risk.  Any financial institution willing to take the plunge will charge above-market rates to help mitigate the risk.  Business sellers will usually offer lower interest rates and for a longer payback period, especially if they’re getting 75-80 percent of the sale price in cash (see 2 above).

4. Acquire real assets
When looking for a business to buy, you will often discover that the selling price is based on both tangible and intangible elements.  Tangibles include such things as real estate, a long-term building lease with advantageous terms, equipment, inventory, and supplies.  Intangibles include the customer base, brand names, trademarks, patents, and something called “goodwill.”  The savvy buyer will ask the business owner to provide a breakdown that assigns a specific price to every asset.  Things like property and equipment have easily discernable market values, and it will pay to have an assessor do some digging on your behalf.  But intangible assets have very little value in a down economy.  For example, a business claiming 3,000 regular customers from a year ago means nothing today.  Pay a fair price for the tangible goods and seriously discount everything else.

5. Do your homework ahead of time
The successful entrepreneur will do a great deal of research before sitting down at the negotiating table with someone anxious to sell a small business.  Look at the overall health of the industry, find similar businesses that changed hands recently, analyze why they sold at the price they did, and pore over the target company’s books with a fine-toothed comb.  Better yet, have the experts do it—an accountant to review the profit-and-loss statements, a business broker to seek out comparable sales, and an attorney to examine the various existing lease agreements as well as the bill of sale.  A well-prepared buyer is a successful buyer.

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