The economy is inching its way up and out of a recession.
And the sale of small businesses is jumping miles.
Although the recovering economy isn’t producing an abundance of jobs to please the average person looking for work, it is pleasing entrepreneurs by causing the buying and selling of small businesses to rise.
The amount of deals that were recorded on the marketplace website BizBuySell. com surged to 1,685 in the third period of 2013, that’s a whopping 42 percent more than that same period in 2012.
So, what’s causing the sudden increase?
There are a few different trends that are to credit. First, with the improvement of sales, many business owners who hunkered down through the recession are now eager to sell their small businesses too. They want to get in on the action while it’s hot and then retire.
Second, banks are increasing their lending. According to the U.S. Small Business Administration, 13 of the country’s largest banks expanded their lending by upwards of $17 billion in the past two years.
Whether you are a buyer or seller and want to jump into this trend, here are a few tips to remember.
TIPS FOR BUYERS:
1. Act Now. Although there are still an amplitude of outstanding deals available in the marketplace, the gap between asking prices and sale prices are closing due to improved company financials. If you wait too long, you may be too far behind any good deals. But, you don’t want to rush anything, either. Make sure you consider the business’s cash flow. It should cover your expenses AND your suitable salary. If it doesn’t, you may want to look elsewhere.
2.Don’t Get a Big Head. With the economy in the boom it is, it’s easy to get caught up in your desire to buy. If you become blind to reason, you may end up purchasing something that you can’t really afford. Don’t underestimated the true amount of money you need to buy to try to justify a compulsive purchase.
TIPS FOR SELLERS:
3.Think in Reality. Don’t go into selling your business with the mindset you will be selling it for pre-recession money (unless you have outperformed the recession). Potential buyers will evaluate your business based on the previous three to four years and that means they will be looking at how your business did during the recession. Even if your business grew tremendously in the past year (which is should do before going onto the market), if your sales plummeted during the recession, buyers will take both things into consideration, not just the good.
4.Know Your Needs. If you are planning on retiring from the money you receive from your sale, make sure you know exactly how much you will need to do so. Remember that you may be pocketing less money than you think due to the expiration of the Bushera tax cuts in 2012. The tax has increased to 39.6 percent. Do your calculation of your business’s worth with that percentage in mind, and compare it with the amount needed for you to retire.
