Selling a Small Business Boom From Dow Crash

The 9/11 attacks caused a crash in the Dow and this past week has seen the next largest crash since that time.

The Dow lost 7% of its value in one day! It gained some back after that but the losses that are suffered can be permanent.

Thousands and thousands of business owners, part of the baby boomers, will need to sell their businesses in one manner or another over the next ten to fifteen years. Many of them must sell in the next two to three years.

The financial markets have lost confidence from the people. The government has felt it necessary to publicly pass bailout legislation that the public really does not like.

What does all of this bad news mean for the owner trying to sell a business?

There are three things that are actually good news for those selling a business: 1. People are laid off during these times. 2. Banks do not have the cash liquidity to finance transactions 3. Buyers will be looking harder at the fundamentals of a potential business buy.

How are those good things? Well, let’s take a look:

In the late eighties and early nineties, the US economy took a tremendous hit. Compaq Computers and other major companies laid off scores of people. One of the consequences was a boom of new companies being formed and business being acquired as these laid off executives decided to own their own businesses. They took severance packages and cashed in retirement plans to obtain the liquidity to invest in either a new business or a business that was for sale.

The impact of these entrepreneurs entering the marketplace was a dramatic growth of small business. Small business creates more jobs than all of the major companies in the United States. The economic boom that followed was fueled in a major manner by the growth and success of these small businesses, not the major companies.

The effect is buyers in the market place, exactly what the business sellers need to make the transition in their business. Yes, the buyers will be driving a hard bargain and looking for value but business that have adopted the six systems of successful businesses will be investments that will sell based on their fundamental cash flow.

Unsecured debt from banks will dry up for the purchase of business due to a lack of liquidity. Even though bank funding will be absent, the new buyers will tap severance money and retirement money to invest.

Banks, for the most part, are actually not a source for funding to buy a business unless the business has assets, like buildings and land or significant hard inventory, that fits the banks’ need for asset based lending. Due to Federal regulation, banks cannot invest in the stock of companies which restricts lending to buy businesses to either unsecured loans or asset based lending. As a result, loans to finance the sale of a business usually do not come from banks.

The combination of the newly unemployed entrepreneurs with severance and retirement funding plus owner financing gives the liquidity needed to sale of many businesses.

Fundamentals of the businesses on the market will be key to buyers. Businesses that are investments with solid cash flow are always good targets. When a business owner has created an investment by having the six necessary systems in place, the business is an investment and not a job for sale. Implementing the six systems of customer attraction, customer engagement, customer service, customer retention, team accountability, and financial reporting will achieve this goal.

The silver lining of the current financial difficulties is a good market for the sale of a small business. To take advantage of that market, a company must implement the necessary systems to have fundamentals that will attract the new entrepreneur buyers that arise from these troubled times.