The time is ripe for buying or selling a business.
Posted by , on July 9, 2014
With credit markets improving and consumer confidence growing, investors are shopping for opportunities to buy. Now may be the perfect time for buyers and sellers alike to investigate the market and explore new opportunities.
After the financial difficulties of 2008 and 2009 dampened performance, many businesses are now in a recovery phase and able to show three or four years of solid growth. When engaging in due diligence, many buyers review the past three years of business performance. A positive upward trend in a business’ financials offers potential buyers a basis for projecting future growth. The financial picture gives buyers confidence in projecting a continued upward climb, making valuations better and the odds of an attractive sale higher.
However, after years of historic lows, 2014 could be the year that interest rates finally begin to rise. If business owners wait too long to sell, they could be hampered by much higher rates. As interest rates rise, so does the price of capital – leading to lower valuations. Buyers who use loans to acquire a business will be required to use greater earnings to pay the interest on loans, regardless of whether the deal involves bank financing or seller financing. The more expensive it is for buyers to access capital, the less willing they are to pay a premium valuation. As rates begin to rise meaningfully, business valuations will in all likelihood decrease.
Experts recognize the aging population – and the likelihood of a glut of businesses for sale in the near future – as another reason to consider selling a business now.
A business owner should not be caught by surprise if a potential buyer expresses interest in his or her company. Neither should a business purchaser attempt to close a transaction alone. By talking to a business transaction attorney before advertising a business for sale or extending an offer to purchase a business, owners and purchasers alike can be better prepared to negotiate the best deal possible.
Keep in mind that the sale or purchase of a company, from start to finish, can take many months to finalize. Talk to an attorney now to get a head start on determining you goals, setting deadlines, and clearing a path for execution.
**Reiling Teder & Schrier, LLC is an Indiana Limited Liability Company. The information contained in this website has been prepared by Reiling Teder & Schrier, LLC for informational purposes only, and is not legal advice. The information on this website should not be relied upon to make any decision, legal or otherwise. If you have any specific questions or inquiries regarding any of the information contained in this website, you should consult with an attorney licensed in your state. The information contained in this website pertains only to matters of Indiana law and the laws of other states may be completely different from the laws of the State of Indiana.