The Business Climate is favorable for both Sellers and Buyers
In business the term alignment is an expression of opportunity…“The deal just happened… the stars aligned!” Alignment in a deal is exciting for both sellers and buyers; the deal was just meant to be.
We are currently experiencing those opportunities for business sellers, as well as buyers.
Here are the indicators we are seeing in the St. Louis community (and throughout the Midwest), as well as the market:
Business Owners are ready to be Sellers
-Business owners rocked by the 2008 crash and the recession that followed have experienced improving business conditions over the past couple of years. Owners may not be back to pre-crisis confidence, but they are feeling more secure and may be ready to sell the business. They aren’t as in love with their business as they were pre-2008 and have, through the battle, developed a more realistic opinion of their business as well as the value.
–Owners are older. Owners who might have been feeling it was about time to transition out of the business prior to 2008 are now six years older and have just been forced to work harder than they did when they were 20 years younger. I will tell you as a “seasoned” owner myself – you run out of energy and patience and begin to ask yourself… is this worth it? Where am I going?
The final element of seller alignment:
– Owners are focusing on the quality of life in their “Life Beyond Business.”™ This includes retirement assets, family, travel, just doing what they want when they want. A funny thing happens when you look over the edge… you start to think about what really matters in your life.
-Many younger entrepreneurs and professionals have been working within constrained organizations during the same years. Working harder than ever, possibly having been told by ownership that their day will come… and it hasn’t. They may be feeling frustrated and thinking if they are going to work this hard, they should be working for themselves. The anxiety within is the fuel that helps develop the courage to take the first step into buying a business.
–Financing -interest rates are low with no near-term signs of dramatic increase. Banks are looking for good loans to solid business with proven track records. New business start ups are risky business for lenders, so they’re more interested and comfortable funding the purchase of established businesses. The SBA, a government agency, is doing their part to actively support small business with tailored lending programs. The government recognizes the power of small business in our economy and is encouraging growth.
Another point of alignment is
–Owner financing. Reflecting on that owner fatigue from the past several years, owners are more willing to participate in getting the deal done by assisting in a portion of the financing. In some cases, owner financing is what makes the deal happen. Deal structure includes buyer cash (or equivalent), lender financing, and owner financing. Lenders love the peace of mind that results when a portion of the financing comes from sellers because then the seller still has a vested interest in the success of the deal.
A tip to buyers considering requesting the owner’s help financing the deal:
be sure the seller has a substantial payday at closing. Asking a seller to finance the majority of the selling price won’t fly; the seller financing portion of the deal should be only 20% to 30%.
Opportunity: a favorable juncture of circumstances. (-Merriam Webster)
Opportunity will be created through the alignment of seller and buyer interests. The passing of the baton of business ownership and leadership from the current generation to the next will be off to a strong start. Exciting times for all!