Oregon Business Broker’s Info for Business Buyers

It is an exceptional time to be buying a small business.  Here’s why:

1.  Many businesses have experienced lower financial performance than in the past due to the general economic downturn, and this contributes to lower values / prices.  For example, if you see a business that had $250,000 in cash flow three years ago, $200,000 in cash flow two years ago, and $100,000 in cash flow last year it initially may look like a troubling trend.  However, if the business is still a sound business, the competitive environment is still relatively similar to how it has been in the past, and the product/service offered is still viable then there’s a good chance that the reason for the decline in financial performance is more directly related to the decline in the economy.  If you can develop a comfort level that this is likely the case, then it is reasonable to believe that there’s a decent chance the business will recover along with the general economy.  However, you should be able to acquire the business at a price that reflects the most recent financial performance.

2.  It appears that our economy has hit bottom and is starting to show signs of improvement.  Have you ever looked back at times when you could have bought something at the bottom of the market, and said, “If only I had bought at that time . . .”  Well, this is likely that time.

3.  There is less competition for businesses right now.  While there are many people looking at businesses right now, many are not buying, which I believe is a reflection of being concerned about downward trends in recent company financial performance and a general uncertainty about the economy.  If we were in a strong growing economy and a business was trending down, then I would be very concerned.  However, if a business is still having decent financial performance despite being in the worst recession since the great depression, I believe that a downward trend is something that buyers should be less concerned about if they anticipate that the economy is now on the mend (even if a slow gradual improvement is expected).  Lower competition from other buyers should translate to attractive prices and better deal terms.

4.  Interest rates are low.  Sure, I recognize that obtaining bank loans for business acquisitions is more difficult right now.  If you can get a business loan it will likely have a historically low rate on it, though.  If the business isn’t financeable with a bank loan, then perhaps a seller is offering to carry a note to finance a portion of the price.  If that’s the case, then sellers will tend to have a lower expectation on interest rate than at other points in time.  You may be able to get a seller to carry financing at a 7%-9.5% rate rather than a more common historical range of 9%-14%.