Selling a Small Business in the Current Economy
In the current economic situation, selling a small business will not be as easy as it was in previous years. The economy has collapsed, buyers are hesitant, and lending has tightened up. With this much insecurity in the market, for many it will be challenging to sell a business in the years to come. However, there are steps you can take to help maximize the selling potential of your business regardless of the economy.
Construct a business plan: Having a good business plan is essential for any business, but is particularly crucial at a time when the market is plagued with uncertainty. Creating a business plan that clearly indentifies current marketing strategies and future projections will greatly enhance the selling potential of your small business. Be sure to include sales strategies that are proven to be currently successful.
Re-evaluate current contracts: Renegotiating your lease agreement, and deals with vendors and employees can help to evenly disperse the financial burden in tougher times. Instead of allowing the business to bear the full force of the economic downturn, bargaining with your accounts payable will gradually reduce your expenses and increase your bottom line.
Implement creative marketing strategies: Thinking ‘outside the box’ with new marketing ideas can boost sales and introduce your business into new markets. Forming partnerships can create great sustainable value and therefore increase the net worth of your business. Ensure your business utilizes social networking outlets, as all businesses can benefit from the increased exposure and resources they can provide.
Provide Financing: With funding increasingly difficult to obtain, a business that is seller financed is all the more attractive to potential buyers. A seller who does not wish to finance is at a disadvantage and may not be able to achieve their asking price. Your willingness to finance the sale affords you substantial bargaining power. It will often result in a higher end price, plus you will be paid interest until the loan is paid off.
Although selling a small business in the current economic conditions can be a daunting task, following and implementing these steps can be beneficial and expedite the sale of your business.
Buying a Small Business in the Current Economy
Due to the current economic conditions, many people will face tough challenges in regards to investment decisions in the years ahead. A large number of people have lost most of their investments in real estate, stocks, bonds, or even their job in the past few years. Purchasing a small business can present an opportunity to begin to regain your losses and get back on track financially. This investment typically provides both a high rate of return and control, and can provide better returns than the majority of other investments.
The expected rate of return on an investment directly correlates to the perceived level of risk. Business ownership ordinarily presents the highest perceived risk, and therefore the maximum yield of returns. Small businesses usually give rates of return from 20% to 50% - up to five times as much as other common investments. This provides you the prospect of regaining your losses far faster, as well as leaving you with an investment that will continue to perform well in the future.
In order to successfully deal with this increased level of risk, it is important to purchase a business that complements your skills and past experience. Do not be tempted by businesses that promise a high rate return, but that you have no experience in. It is advisable to purchase an underperforming business which you can grow and improve rather than an opportunity in which you have no background. A good business advisor or broker can assist you in managing this risk.
Owning a small business gives you the ability to control your own investment. You personally manage decisions which determine how the business performs, both now and in the future. Due to the current economic situation, many businesses are selling below market value and sellers are more inclined to provide financing. You may also be eligible for a small business loan through your local bank or a SBA government program.
Ultimately, this is an ideal time to pursue your dreams of small business ownership in order to help secure your financial future. With careful planning and risk management, the returns and rewards can be well worth it.
Selling A Distressed Business
Surprisingly, selling a distressed business can be profitable and relatively straight-forward. There are individual buyers and firms that specialize in purchasing such businesses; these buyers tend to be opportunistic bargain hunters and are adept at getting more for their money. Therefore, there are some strategies that you should utilize in order to maximize profit from the sale of your distressed business.
First of all, you may want to enlist the help of a business broker who specializes in distressed sales as they may be able to sell your business quicker, more effectively and help broker a better deal for you. Whether you decide to use a broker or sell your business independently, it is imperative that you prepare your financial statements and identify potential buyers.
You must develop a realistic understanding of the value of your business, in order to sell it in the most profitable format – either as a whole, piecemeal or by liquidating part of it. Search for ways to reduce risk to the buyer, and emphasize the value of the business’s assets. Never underestimate the value of your customer base, as this is often the most significant asset of a business. Also focus on the worth of your inventory, intellectual property and FF&E. Review the areas of the business that require improvement and perform a cost–benefit analysis. If fixing an area of concern leads to a rapid raise in value that outweighs the cost of repair, you should certainly do it.
Finally, have a strategic plan in place in regards to the actual sale of your distressed business. It is often advisable to have a ‘time is money’ approach to the sale, as time spent waiting for a higher offer can ultimately lose you money. Nevertheless, always first examine the benefits and risks of taking a quick, lower offer over waiting to reach your anticipated selling price. You should also have a back-up plan in the event that your business does not sell – continue to manage the business, liquidate or declare bankruptcy.