Small-business owners expecting big payoff on sale of their business may have to console themselves with much lesser payments than expected. A lot of factors come into play for this compromise. Tight credit, skittish buyers and business owners unwilling to reduce prices all play a crucial role in this crunch.
According to BizBuySell.com, the online small-business acquisition company, 1,117 small businesses were sold in the third quarter of the year earlier. In contrast to this, 1,462 sales took place in the year 2008. In 2010, owners listed their businesses at the price of $245,000. However, the closing of sale price during the period remained $140,000 which is 6 % less than what it was in 2009.
One reason for reduction in sale of enterprises is business owners asking for prices that are greater than the company’s actual valuation. Thomas Coffey, a partner in Malvern, Pa., with B2BCFO, says, “Owners still think their businesses are worth what they used to be. Small companies just aren’t earning what they used to earn.”
Many small businesses claim that they have identified interested buyers but they are not getting the required fund due to the plunge in loan guaranteed by ‘Small Business Administration.’ The $16.84 billion loan guaranteed by the agency in current fiscal is down from $20.61 billion in 2007. To bridge the gap some owners are proposing giving part seller financing.
There is also another problem that hinders sellers. There are potential buyers with all the funding available and still hesitating to close deals seeing the volatile economic condition. Under these circumstances, owners themselves are shying away from sale of their business. This is validated by findings of BizBuySell which show a 7.1 % decline in listings from the year ago.
For many owners selling their business enterprises in the current environment would mean that they should settle for less. This may be good from the buyer’s perspective but not from the sellers. So, owners are waiting for the recovery of the economy before they step out in market for sale. But then there are also people who fear a double-dip recession to occur and are not willing to wait.
Maria Coyne, executive vice president at KeyBank, says, “They probably started thinking of selling their businesses years ago and times got tough. But now they’re thinking we’re back to a more reasonable environment.”
This article was submitted by Rohit Arora, co-founder of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to