Is It Crazy to Buy A Business Now? - Richard Parker

Richard Parker is the author of How To Buy A Good Business At A Great Price. This best-selling program contains over 500 pages covering every stage of the business-buying process. Visit www.diomo.com.

It would be easy to convince yourself that right now is not the time to buy a business. I don’t blame you one bit for thinking it may be best to wait.
Or, perhaps you are thinking that you should just go about this cautiously and, if the right opportunity comes up, you will consider it. Caution is always a good approach, but nobody has ever been successful sitting on the sidelines.
So what should you do?
If you approach the market correctly, right now is an opportune time to buy a business. But, there are certain fundamental steps you must take in today's economy to be sure you acquire a business that can withstand the current climate, and grow in the future. The lesson here is simple: today, more than ever, you must be exceptionally diligent in your investigation.
The Business Buying Market Has Completely Changed
The entire market for business sales has changed. Business buyers must negotiate entirely different deal terms today in order to be protected.
Up until recently, the seller always had the advantage. There were lots of able buyers, third-party financing was readily available, and so they could be rigid in their terms, and almost "cocky" in their approach. Those days are gone, gone, gone.
Here's what is happening in the market right now...
Banks have completely stopped lending money to finance small business purchases.
People have lost their confidence in the economy; and while there are still plenty of “lookers”, real business buyers are few and far between.
Sellers are concerned because the number of qualified buyers is a fraction of what the market used to be.
Business brokers are panicked because they can’t sell anything right now.
What a mess!
What an opportunity!
Why It May Be The Ideal Time to Buy a Business
Most business owners are concerned about the future, and if they already had plans to sell in the next few years, they are suddenly incredibly motivated.
Since businesses that are officially on the market are not selling and there are a lot fewer qualified buyers, anyone who is in the position to pull the trigger on a deal is king right now.
The business broker industry is down between 25 to 40%. I work in this field, so I know all the statistics that no broker will tell you – and believe me, it is a disaster! You had better believe that the brokers are forcing their clients to lower their asking price and their expectations because if they don’t sell businesses, they don’t eat.
No matter how firmly any seller or broker may represent their deal terms to be, rest assured they are caving like flies when an offer comes in.
While there are some outstanding opportunities available, there are a lot of garbage businesses listed for sale that will likely go out of business in the next year. Knowing specifically what to look for is critical in order to separate the good from the bad. You cannot limit your search strictly to what you find online – that is NOT where the deals are today.
Five Crucial Issues To Keep In Mind When Looking At and Evaluating Businesses in The Current Market
The challenge you face is how to get through all of the garbage listings and find a rock-solid business that you can sustain and grow, and not wind up with a loser.
Issue # 1 - The seller must be the bank. Traditional lenders are simply not making loans for small business purchases. With the credit crunch, banks are no longer as willing to lend money for small business purchases. It may not sound so, but this is great news for buyers. It means that seller financing, one of the keys to buying a good business at a great price, is now a must. In fact, 91% of our clients have negotiated seller financing into their deals in the past year.
Issue # 2 - The seller must guarantee the future of the business. A performance-based guarantee attached to the purchase price is a must and something that we will help you negotiate. Nearly every single one of our clients is doing so today.
Issue # 3 - You need to look at a different set of financials than normal. Instead of year-end numbers, you have to get access to the monthly financials for the past three years. You need to measure and compare the current monthly periods to prior ones so you can easily identify any decline in the business, determine when it began, and what the recent trends have been.
Issue # 4 - The current economy won’t last forever. It never does. While a business may be experiencing a small decline now, as long as the key fundamentals are in place, the trend will eventually be reversed. Being able to identify these underlying fundamentals is paramount.
Issue # 5 - Valuations must reflect the current trends - not the "glory days". If the business is not growing, you can easily rationalize taking the lower profit numbers and make them the entire basis for your valuation. That way, even if the company has had three tremendous years recently, you can calculate the valuation entirely upon the fact that they’ve experienced a slowdown recently. Nobody can dispute that argument.
Your Next Steps
I am not suggesting that you go out and buy the next business you see. But if you have the right information available, and the right advice to help you, you can negotiate an incredible deal.
Despite the economy right now, while everyone else is sitting around talking about all the doom and gloom, you can be on your way to owning a good business.

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