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Has There Been a Better Time to Buy a Business?

It’s been a long and deep recession, perhaps we are seeing signs of coming out of that recession and the businesses that have survived will be stronger and have been able to adapt to and manage change.

What hasn’t changed is that there are still a number of business owners who wish to exit from their business, probably due to their own retirement plans or maybe for other personal and non-business related reasons.

Buying a business is risky, perhaps one of the riskiest things you will do in business, but with risk goes reward. It has been tough going, but as we come out of this economic downturn some of you will want to get “tougher” and start to build your own businesses ready for your own retirement and succession plans. Perhaps now, there has never been a better time to buy a business. Why do I say this?

Well, they say every cloud has a silver lining and during this downturn, because of the lack of funds to oil the wheels of transactions, amongst other things, business valuations have fallen. To add to your existing business will never be as cheap and remember what I said at the beginning of this article, businesses that have survived this recession have shown they can manage and adapt to change. By definition, they are pretty good businesses.

Coupled with the fall in business values is the fact that vendors accept they may have to assist in the financing of the sale. Gone are the days when vendors expected all the cash on completion of the sale (and very often got it), typically we now see vendor consideration deferment between 25% and 50% of the total sale proceeds. This deferment can be in the form of loan notes, earn- out or equity roll over. Exactly what form it comes in will depend upon each transaction, the important matter to note is vendors’ acceptance of financial assistance to ensure the deal happens.

You should also never forget that funding the acquisition of a business is essentially an equity risk and should therefore be funded by equity, not by debt. There are a significant number of equity sources available today all of whom want to assist in helping your business to grow and become more valuable to you. Yes I accept they too will share in the rewards as you will have to give away some equity. But a smaller percentage of a much larger sum is usually worth more than full ownership of a business worth considerably less because it has not grown. This is a valuable source of finance and if you are wishing to acquire to grow, its importance cannot be ignored.

Look at the upside, manage the risk, get the right professional advice with the right financial structure and ensure you carry out full due diligence that gives you all the information for you to make the correct business decision. If you get this right, you should reap the benefits. The most important thing having bought the business, which is why many acquisitions don’t succeed, is the failure to integrate the acquired business into your own. Disregard this at your peril, get it right and you’re on the way to making a successful addition to your business.