Businesses for sale: More buyers looking, but they want cash flow
It’s the ying and the yang of the business world. An economic downturn tends to result in an increase in businesses for sale on the market. It also presents opportunities for buyers looking for a calculated risk.
“There are more buyers than the norm,” said Mike Schaak, president of the Redstone Group, a Grand Junction firm that brokers the sale of businesses.
And while more buyers might be hunting around these days due to reduced prices and increased opportunities, Schaak cautions that it’s not easy to obtain a loan to make a business purchase.
“The banks themselves have been reluctant to loan,” he said. “We’ve been restricted to deals where the seller is willing to finance of someone has cash (to buy).”
He said one silver lining has been the U.S. Small Business Administration 7 (a) loan program, which has been accessible for business purchases. The program is designed for startup and existing small businesses. Under the provisions of the newly enacted Small Business Jobs and Credit Act, the maximum size of loans backed through the 7 (a) program has increased to $5 million with a 90 percent guarantee.
Buyers aren’t interested in just any business, said Schaak. They’re usually looking for businesses that are taking in more than they’re spending these days. “For most small buyers, they need cash flow. There are fewer cash flowing companies for sale.”
Despite an increased number of businesses on the market, prices generally haven’t dropped, Schaak said. He added there’s not a strong link between real estate prices in general and the cost of businesses. Even though property prices might be dropping locally, the price of a business housed in a building can be based on factors other than the cost of the building or land on which it sits Such factors as inventory, the customer base and the reputation of the business can all play into its market value.
Schaak said 60 percent of his clients are in the local area. The others are outside, and he said that most buyers fall in the latter 40 percent.
“On the buyers’ side, more are on the Front Range or not in Colorado at all,” he said. “The majority of sellers are in Western Colorado.”
And as Schaak looks for opportunities for his clients, he’s hoping to come across more businesses that cash flow during the coming months.