The single biggest unknown that prospective business buyers face is determining what the business will become after they take over as a new owner. Unfortunately, it is also one of those things that are extremely difficult, if not impossible to predict. Certainly, it is very important to determine how well the business will transition and to have a clear picture of what “life will look like” after it is sold. However, a greater issue is establishing realistic criteria of the fundamentals that must be in place for any business you consider purchasing.
To the latter point, one area where many business buyers make a mistake is having delusional expectations about past performance and growth (or a lack thereof), which always leads to uncertainty about the future, and quite often is the reason why a buyer cannot complete a deal.
Except for a few select industries, most businesses have had a very tough go over the past several years. The overall economy, a lack of available financing, falling revenues/profits, increases in unemployment and most importantly a decline in overall confidence in my opinion has had a massive impact on the business sale marketplace. Nevertheless, the market remains flooded with people looking to buy a business and small businesses are being bought and sold everyday albeit far less so than a few years ago.
Many buyers and especially first-timers will only target ones that have shown upward trends in the recent past yet most businesses are not growing.
How then can a buyer reconcile this dilemma?
The reality is that things may not get better in the short-term. What if the current economic period remains the economy for the foreseeable future?
Should buyers simply sit on the sidelines and wait until things get better?
Absolutely not!
No true entrepreneur has ever had any success playing the “wait and see” game for a prolonged period.
Nobody can predict what the future holds (if you can, call me right away please) and so prospective business buyers have to adjust their thinking when it comes to their core criteria of what they want to see in any business they consider purchasing, and specifically, about how the business has performed in the past couple of years.
It would be wonderful if every business for sale had a ten-year track record of growth.
Heck, most buyers would settle for just a couple years of historical increases in sales and profits. Even that expectation in the current environment is a stretch.
Don’t get me wrong; a “wish list” for any buyer should include demonstrative growth and they do exist, but any buyer who deems that to be priority number one and will only consider those ones is going to spend a lot of time trying to find a reasonable selection of businesses for sale which meet that hard core rule.
Consider this: instead of growth, think stability.
Actually, I would go so far as to say that look at stability as the new growth. Adjust your criteria and target businesses that have been able to show consistency in the recent past.
Reject the idea that a business has to have years of sales and profit increases; those are not the norm.
Obviously, any company that has been able to grow in these difficult times may be ideal, but those are rare, and will likely remain so for a while.
Most entities are still experiencing declines or inconsistent performances which make the decision very difficult for a prospective business buyer and impossible for ones who will only buy a business that has been growing year after year.
If you are comfortable that a potential business can transition well to you, and the recent past dictates that sales and profits are stable, then you have in fact found a solid, “growing” business.
Richard Parker
author of the How To Buy A Good Business At A Great Price© series
Diomo.com