What’s the market like for selling a business?
It happened again today – Someone asked “what’s the market like for selling a business?”. I get asked that question a lot. It reminds of advice from the instructor for my real estate license “people will ask you, so how is the real estate market?, and you better have an answer. (By the way, I sell commercial property as part of a business transaction).
Here is my answer about the market for selling businesses: The market is and has always been on a spectrum: great businesses have a sellers’ market, good businesses have a buyers’ market, weak businesses have no market (other than liquidation). It really is that simple.
Of course, only about 10% of all businesses are truly great, so most businesses operate in a buyer’s market most of the time – i.e. sellers do not get their asking price, let alone what they thought it was worth before their broker priced it. Sadly too many businesses are weak, sometimes the weakness is financial, other times it is lack of transfer-ability (the seller is too integral to the business, therefore a buyer can’t replicate the seller’s results).
Three businesses on the market:
We have a great business that got 12 signed NDAs and two offers in two weeks. A full price offer was accepted and we hope to close in a few weeks (fingers crossed).
We have another business listed that was closed for a few months due to COVID restrictions, is now at 40% of capacity and is struggling to sell.
We have another that is very small, but is being priced to sell, since the owners are moving (a smart owner/seller).
I have turned down multiple restaurants because they either have been closed or they keep so much cash off the books (shocker), that a buyer can’t judge a fair price. (PS why do sellers hide cash for years from the tax-man, then expect to get paid on the cash profits, they can’t prove exist, at the closing table?
Financing is getting harder:
Then there is the matter of financing. Banks which were overwhelmed with PPP loans, are now getting skittish because they are boosting reserves to cover expected losses on their current loan portfolio. I heard of one buyer of a good business that went to 17 banks to get an SBA loan. That is rough.
Lesson: build a great business (i.e profitable and transferable) and you will find a buyer with financing. If you can’t, be realistic when selling, or simply enjoy the ride you have had and throw a retirement party (I know of an owner who did just that; I thought it showed maturity and gratitude).
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