Dublin, CA (Vocus) January 30, 2010
An article with advice needed by entrepreneurs interested in selling a small business in 2010 has been posted at BizBen.com--businesses for sale in California. It points out that the marketplace for small businesses is changing in this economic environment, and it lists six principles a business seller can follow in order to increase chances of a successful deal.
“We’re hearing cries for help from baby boomers getting ready to retire and other business owners who want to sell,” said Peter Siegel, MBA, founder and CEO of BizBen.com.
“They’re discovering what a difficult challenge it is right now to get your price and come out with a clean deal.”
According to Siegel, the tight credit markets have “all but dried up the flow of cash that business buyers have traditionally used to complete their purchases.
“And with declining home equity cutting into the net worth of entrepreneurs, it leaves them less borrowing power even when they can find willing lenders.”
Siegel said that in addition to the shortage of purchase money, the sellers’ market is impacted by a “pervasive mood of uncertainty about the economy.
“There still are plenty of people who want to buy businesses to secure their livelihoods, but the level of caution has gone up. And that makes it hard for a seller who has to answer the same question ten different ways and still doesn’t know if he or she has a deal.”
Among the suggestions in the article posted on the BizBen site are ideas about pursuing an earnout strategy (which ties the final selling price of a company to its performance over time), and participating in the financing when selling a small business.
“Even a business priced at what it is worth is unlikely to sell at that number unless the seller is willing to carry back one-quarter to one-third of what is asked. The owner who insists on cashing out probably won’t find any full-price buyers willing to go along with those terms.”
The BizBen.com head explained that the earnout approach is used to “bridge the gap” between what a buyer wants to pay for a business, based on its current performance, and the insistence of a seller that the company’s present earnings slump is temporary.
“We can see a solution if the parties start out with an understanding that the price reflects today’s business, but then adjust it up or down, responding to performance going forward.
“You can fine tune the price,” said Siegel, “by stepping up or down the payments made by the buyer to the person selling a small business.”
Another suggestion in the article involves renegotiating deals with suppliers.
“It doesn’t make sense for a company to struggle with lower revenues in the current economy and absorb all of the high costs associated with the more robust business climate we saw in the recent past,” said Seigel. “A seller who wants to get costs in line with earnings needs to go to vendors and tell them they’ll have to come back to the bargaining table if they want to continue doing business.
“That principle even applies to landlords. If they look around they’ll see more empty retail and commercial spaces in most markets. Any time someone is selling a small business and holds a lease that’s nearing the expiration date, it’s a good idea to let the land owner know the business will need better incentives to stay in the space.”
BizBen.com is the most popular and frequently used site for California business buyers and sellers, as well as for business brokers and other professionals who serve them. Peter Siegel, MBA, the founder and CEO of BizBen.com, has been advising entrepreneurs interested in buying or selling a small business for more than 20 years.
Contact: Peter Siegel