Four Keys to Selling In a Buyer's Market
The business-for-sale market has been slowly recovering for the past few quarters, and the first quarter of 2010 was no different. According to industry data, the number of closed business-for-sale transactions rose slightly last quarter, by 0.3 percent, as compared to the first quarter of 2009.
Although this is a relatively small increase, it's a positive sign, especially given the deep declines in closed deals in the past two years. And evidence of a turnaround is more apparent when comparing Q1 2010 data to the prior quarter, which shows a healthy 6.3 percent increase in transaction volume.
While deal volume is up, there's still downward pressure on business-for-sale listing prices. Even with transactions on the rise, revenue multiples fell 7.4 percent compared to the same time last year, and cash flow multiples also decreased by 6.5 percent in that time. Similarly, the median sale price of businesses sold on BizBuySell in the first quarter of 2010 was down from $165,500 to $150,000.
The data suggests that it's still a buyer's market out there. This is the result of a few factors, most notably weaker financials for selling companies, a lack of confidence from buyers that the economy will improve quickly, and a dearth of capital available to those who want to buy a business.
This lower pricing pressure applies largely to companies that have weak financials. Businesses that are performing well can still sell at a good price.
For business owners looking to sell in this market, there are things you can do to improve the odds of closing the deal and to ensure you receive a good price for your business. These tips will get you started.
- Price your business right.
It is especially important in a buyer's market to ensure that you are pricing your business right. Pricing your business too high will hurt your ability to sell your business and may leave you fighting an uphill battle that only ends with continuous drops in price. Pricing a business too low can cause prospective buyers to assume that something is wrong with the business--or they will pounce on your mistake, resulting in your leaving money on the table that could have been in your pocket. Seek the advice of a valuation professional or a business broker to help establish the right price for your business.
- Remember you're still running a business.
Selling a business is almost a full-time job. It's important to not get so tied up in the process of selling your business that revenues and operations decline in the meantime. There's nothing worse than trying to sell a business that appears to be ailing. The key is to make sure you have enough resources to focus on both tasks--selling the business and running the business--to ensure that you make progress on both fronts.
- Be willing to share some of the buyer's burden.
As a seller, you can make your business more appealing to a potential buyer if you're willing to offer seller financing. At a time when capital for business acquisitions is scarce, seller financing gives a buyer a way to fund the purchase of your business. In this market, seller financing can make the difference between closing a sale or watching your listing get dusty without ever getting an offer.
- Offer a roadmap to success.
Though the numbers point to a market heavily favoring the buyer, buyers are still tentative. This economy presents several challenging scenarios that can cause a potential buyer to have second thoughts about purchasing a company. Anytime you can provide a detailed roadmap to future success in your business, you have a better chance of attracting the right buyer.
To help make the road to success more convincing to a potential buyer, you may want to lock in long-term B2B contracts that can guarantee future revenues. You can supplement this effort by signing one or two more clients so potential buyers see the business won't be crippled by the loss of a single client. In addition, that roadmap to success may include putting off investments that have long-term payouts. After all, a buyer will have their own ideas about what investments they want to make.
It's a buyer's market out there, but that's not necessarily a reason to hold off on selling. Business owners who get it right are still closing deals at prices that can satisfy all of the parties involved in the transaction.