What are Realistic Expectations when Buying or Selling a Business?

The number of businesses sold in the market has reportedly grown significantly in the last quarter. Although this may be considered a positive development, this has yet to reverse the slump experienced in the past three years. Buying a business or selling a business these times where the economic conditions are still volatile demands from all parties concerned (the buyer, the seller and the business broker) to re-think their expectations. Everyone must have a firm grip of the market trends during this current unpredictable economic environment.

With many sellers wanting to sell their businesses so they can enjoy the financial rewards of their work and sacrifices or due to their desire to move on to a new venture or challenge, and the new breed of buyers caused by the high unemployment rate (as laid-off employees are now looking to buy a business as an alternative to traditional employment), one would think that the market is more liquid with many businesses sold and bought. But such is not the case.

Seeking and getting approval for capital is tough these days. Traditional lending institutions are cautious in committing to financing small and medium business acquisitions. There are people out there who want to buy a business but their dreams are not realized because of lack of capital due to difficulties in borrowing.

Those selling a business who hope to get paid full in cash are overly optimistic. Getting paid in full at once rarely happens. Usually, buyers make a down payment and pay the remainder in installments for years. The seller should be patient, flexible and creative with the terms of the transaction. He or she must weigh and study the consequences of the various financing deals offered before deciding. Buyers who hope to have full third-party financial backing in buying a business are also in for a surprise. Banks are more discriminating with the prevalence of fraud and mismanagement. They want to go over the deals with a fine-toothed comb. It is seldom that buyers acquire a business with no participation at all. Business brokers also have to contend with more careful and educated buyers who are knowledgeable about the businesses they are eyeing. They should provide detailed accurate financial information sought by these clients. Ramming the deal down their clients’ throats no longer works.

Despite the confluence of factors favorable to buying or selling a business these times, we have to examine why there are not much transactions or closed deals. The high unemployment rate drives more people into business, be it buying a solid business or starting a new one. Borrowing interest rates are now lower. There are more buyers for the many businesses for sale offered by retiring entrepreneurs. Sellers who want to enjoy the fruits of their many years of work and sacrifice must be willing to negotiate and consider seller financing. With hard-up capital, they have to consider alternatives.

Business brokers are also more driven to bring together their clients with the various business sellers to earn their commissions. They need to know the various businesses for sale so they can meet the demands of their clients. There are many people who wish to buy a business but only a small number follow through.

All parties want to get the deal done. Neither the seller nor the buyer will get everything they want, but it is possible for all to end up satisfied with the price and agreement. All parties need to adjust their expectations, and work together to find solutions for a win-win business sale transaction.

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