Posted by Terry Welsh on Tue, May 31, 2011
There are many valua
tion methods that can be applied to businesses for sale and sometimes we make the mistake of thinking that they are critical to the analysis of the business we are buying or selling. Relevant, yes. Critical, maybe not. The reason that I write this is that the sale of your business is unique. Your business has an unexplored upside and a history of financial stability. It is not the same as other businesses in your industry. It is not the same as your competitors’. Automobiles and homes that are for sale exist in large numbers that can easily make a “market”. Comparing one to another is straightforward and meaningful. This is not true of many small- to medium-sized businesses.
If you are selling your business, its financial stability speaks volumes to the comfort that it has provided for you and to the future comfort of the prospective purchaser. If you are the seller, the unexplored upside may put more money in your pocket if the new owner is confident that he can exploit that opportunity. Unexplored upside adds value to the purchaser in that he may consider paying a higher price. Many prospective purchasers believe, however, that the risks associated with growing the business and their associated returns belong to the risk-taker and are not willing to pay a premium to a seller who has chosen not to take those risks.
I want to explore this topic in future postings because sellers often have unrealistic expectations in regards to the upside of their business and its resultant value. Sellers who have seen a decline in business performance tend to balance this negative with the thought that a new owner could easily grow the business by doing something that they were (and are) unwilling to do. As business brokers, we help position these businesses so that the prospective purchasers have a clear understanding of what their efforts are likely to yield in terms of future results.
Posted by Eric Breidenbach on Wed, Feb 23, 2011
The SBA loan limit for business acquisitions, excluding the real estate portion, has been increased $5.0 million. The loan amortization period is up to 10 years and interest rates remain at historically low levels. There is good availability of funds if you are looking at a business for sale. At present, Buyers should expect to make a down payment of at least 15%. Sellers can continue to anticipate carrying a short-term note of 10% or more. Seller notes are generally interest only for three years, with a balloon payment financed by the primary lender. Requirements can vary from lender to lender.
Prospective purchasers should expect that the SBA lender will require collateral in addition to the business being acquired. This is most commonly a lien on the Buyer's personal residence. Sellers will be in second position with regard to collateral for the Seller Note.
The SBA has taken a more pragmatic approach to the amount of Goodwill as a proportion of the amount financed through an SBA loan. This is good news for prospective purchasers because the majority of business sales have low amounts of "hard assets" and the purchase prices are driven primarily by the size of business cash flow.