As I write this month’s newsletter, I am working on an exciting new project that will put a powerful tool in the hands of our readers and clients. Called the Business Sellability Index, it measures the qualitative and quantitative factors of a company that determine how easy it will be to sell, and is founded on the principle that sellability is distinct from valuation. Stay tuned for its release; we plan to offer it for free for the first couple of months, after which we may begin charging a fee.
In the meantime, I want to share data from a very insightful, independent market research report, and provide commentary on its findings. Each quarter, the Pepperdine Private Capital Markets Project, run by professors at the Pepperdine University Graziano School of Business, releases a report assessing the market conditions for small business transactions. In one of their recent reports, they listed five common reasons that companies don’t sell and are subsequently taken off the market (“%” indicates percentage of survey respondents who gave this answer): Continue reading
Yesterday, the Federal Open Markets Committee (FOMC) announced that it expects interest rates to remain at exceptionally low levels through late 2014. This is excellent news for both buyers and sellers of small companies.
Interest rates are a key factor in determining what a buyer can afford to pay for a company. Lending institutions value companies based on their debt servicing capabilities i.e. the size of loan that can be repaid using the existing cash flows of the business. A lower rate yields a lower monthly payment, and since principal and interest tend to have an inverse relationship, lower interest rates enable the buyer to be able to take out a larger loan. Thus, buyers can be more competitive in the bidding process, and sellers can maintain better pricing power for their companies.
Those of you who regularly read this newsletter know that I usually discuss topics related to selling a business. At the end of last year, I was approached by Audiology Online and asked to create a presentation targeting first-time business buyers. I gave the live presentation in February, and a follow up article is forthcoming. Below you will find an excerpt from the article and a link to the presentation.
Tip #4: Be Patient with the Seller
In order to avoid the frequent conflict that can arise over the exchange of information early in the negotiation, the article recommends the following approach:
1. Assume everything the seller tells you is true. This may sound naive, but the point is that you should ask yourself this question: if everything the seller tells me is true, do I want to buy this business? If yes, how much am I willing to pay? Continue reading