Regarding Buyers: I see less buyers trying predatory/low ball offers here at the tail end (hopefully) of this COVID period. More buyers are coming back into the marketplace, but too many aren't prepared - i.e. by getting pre-qualified for SBA financing (business purchase financing), getting their "Buyer Profiles" updated, and finally still not searching strategically correctly to buy a business - don't worry we'll be covering this topic and more in our weekly Live Podcasts on BizBen! Seeing a lot more "corporate" individuals/buyers again who are wading into the small business purchase arena.
Regarding Sellers: I see many sellers trying to pass of COVID relief funds as "earned income" to buyers (c'mon sellers, really?). I am also getting many more calls from Sellers "coming up for air" wanting to initiate the ProSell Program on BizBen.com - they feel that buyers will be entering into the marketplace more fulltime mid-June, but they still need to get all their info ready - 2020, 2019 business tax returns inline, a comprehensive write-up about their business, and getting their team in place (intermediary and advisors).
Overall I see the entire business for sale (small and mid-sized businesses) marketplace heating up in June and really taking off in July. I feel there is so much pent up demand by both buyers and sellers that this momentum should drive a very active market well into the end of the Summer and into the Fall of this year.
Would love to hear your comments below regarding what you feel the latest trends and predictions for the future are regarding buying and selling small to mid-sized businesses.
In the gas station, convenience store and car wash industry, the current market is favoring sellers - there are more buyers than sellers right now.
In the last several weeks, I have been very disappointed in having dealings with uncooperative brokers and agents. Let me tell you about one in particular. I saw a gas station listing, in the area that I know my client is interested in. So I filled out the NDA, (Non-Disclosure Agreement), got it signed by my client, and requested business and real estate information from the seller's agent. I received an email back from the seller's agent, he knows my buyers, and has already given him information on this station. My client, instead calling me, to let me know, the station he just signed the disclosure on had just reached out to him, and went around me. This broker lied to me, had never previously contacted my client, but immediately called him, when he saw his name on the disclosure. Unfortunately this kind of behavior happens, and we are left to wonder, what else might the seller's agent be untruthful about. This kind of behavior is something to be mindful of especially if you are selling business. If the agent/broker selling your business is not willing to cooperate with other agents, you will miss out on potential buyers.
Regarding financing to buy a business: The SBA has very favorable terms right now. For many business buyers, government small-business loans are the holy grail. SBA loan interest rates are some of the most competitive amongst lenders. As a part of the CARES Act, SBA is authorized to pay six months of principal, interest, and any associated fees that borrowers owe for all 7(a), 504, and Microloans ... The SBA will make 6 months of your payments - I have never heard of that!
Speaking for the Laundry industry, our biggest challenge is in obtaining long term leases at reasonable costs. Landlords are justified in their hesitancy. The unpredictability of commercial property market is perplexing. It is not just the shift in our personal buying habits, but since the changes to our work space and methods stimulated by Covid-19, people have now grown more comfortable working from home and are resisting the return to office life, so a great deal of office space conversion is also likely. These changes will apply pressure everywhere. Answering the question of how all of this will influence our lives will complicate securing commercial properties for some time to follow, especially when the lease is already in place but in need of extension or otherwise weak.
In many ways, the laundry industry is stronger now than ever, for those laundries strengthening their models, improving the customer experience and attending their laundries, many have grown through the crisis. This trend toward the better laundry operation will likely continue and probably grow, assuming the ability to obtain the lease.
On Leases: This has been an issue with many of my contracts and some do not close because of it. During the pandemic many people thought about opening or purchasing their own businesses. However, when everything started to open, they decided to move forward and still ask for huge rent reductions. And many of the property owners are not having it. Some of the deals have fallen through because an agreement cannot be reached. During the pandemic some leases were able to be negotiated fairly and others were not. Now that things are opening up rents are still a bit under market but buyers in some cases are asking for long term low leases and it is just not happening. Or new leases are being offered but many changes in the wording that make buyers leery of why they won't just assign. There are many success stories also, but these are a few of the current issues.
On SBA Financing For Business Purchases: It seems as though SBA funding is available if the business was open during the pandemic. If not, the funding is very hard to qualify for in my opinion. Even if they were open and did not ring great numbers it is challenging. And the time frames are longer. They are back logged so it seems to take longer than the already long process.
On Closing Deals: Difficulties in SBA financing so more seller financing being sought after and for creative deal structures: how about a 10% or 20% retention of ownerships on some businesses in leu of seller financing. The seller stays on as a silent partner and receives some profits.
Even with the current uncertainties which still exist regarding the economy, Covid, etc., we are seeing a good number of sale transactions which are being negotiated and closed at present. No doubt, the continuing favorable interest rate environment is helping to drive this. In our experience, the interest in getting deals done is not limited to certain business segments, but we are experiencing activity across a broad range, including the service industry, construction, health-care, etc. Barring some unforeseen circumstance, we are anticipating continuing significant deal activity.
It's the beginning of summer and many business owners with additional PPP funds, grant money from California because of an unexpected windfall of tax revenue and occupancy restrictions ending, are at their most optimistic I've seen yet. There's a little instability in regards to pricing, because of sales last year, but I predict the market to stabilize as we enter the fall. Liquor markets continue to sell at a brisk pace and more medium priced restaurants are coming on the market with buyer interest. Gas stations are also becoming desired among buyers.
Restaurants that have embraced take out sales and have adapted to the various new forms of ordering such as third party delivery vendors, in house on line aps and walk in take out orders have thrived during COVID and in most cases are doing even more sales now than ever before.
This is a unique situation given the devastation the restaurant business has reported to have suffered. But actually, the segment of the restaurant business that has embraced take out have thrived with less labor and eventually as they expand, with smaller square footage requirements and therefore lower rent will become even more profitable in the future. As dining rooms open up, these restaurants can do even better if they can keep their take out business and add the dine in sales on top of take out rather than the other way around.
Take out used to be the step child of the restaurant business, now it is the main driver of highly efficient sales. Restaurants have three main expense categories: Food Cost, Labor Cost and Rent. Increasing take out sales helps you control all three of these prime cost categories, not to mention the capital savings for smaller spaces.
Once people get used to convenience, they don’t want to give it up. There will always be a place for inside dining- the escape from the outside world- being served- interaction with friends and family that’s fine but the real money is being made by the take out guys- sandwich shops, pizza places and other quick serve restaurants that will feed the masses.
Over the next few months, Summer 2021, we should see an upturn in the number of solid, profitable businesses on the market, particularly those that not only survived but thrived during 2020 despite the pandemic. Why should a business owner look for a buyer in the face of now-obvious and demonstrable success and sustainability? Because "the best time to sell is when you're doing well." Frankly, the best time for a buyer to purchase is also when a business is doing well; better to pay a bit of a premium for a rising star than get a “bargain” on a sinking ship.
The areas most likely to have increased business opportunities will be manufacturing, health care (home health, assisted living, alternative medicine), business-to-business services, web-based consumer sales firms (e-commerce), and remotely-manageable companies of all kinds.
Sellers and buyers should be aware of a few other trends I'm observing:
Business purchase financing through the SBA is taking longer and is more difficult because the same bank resources are being used to process PPP loans and loan officers are becoming more scrupulous in the light of the 2020 business cycle. However, a business that did well during 2020 is probably worth more now than it was before the pandemic in February of 2020. This is a time for creative financing and unorthodox deal structures, important expertise buyers and sellers should expect to get from a professional business broker.
In many cases, buyers are at an advantage in negotiating lease transfers and extensions, especially for retail space where landlords want to retain existing business clients in the wake of decreased post-pandemic demand. Landlords may be inclined to offer better terms and lower rates to a qualified tenant. It guarantees the landlord no vacancy and usually saves the landlord from paying a real estate commission for acquiring the new tenant. For sellers, this makes the acquisition cost to a buyer more attractive.
One often-prevalent "fix" in an underperforming economy is for business owners (and prospective sellers) to cut back on their marketing investment. This is a terrible tactic. The one almost universal weakness (or challenge for improvement) I see in businesses for sale is less-than-robust and uncreative marketing. In most cases, the surest way to increase business value is enhanced marketing—assessing the market demand, re-designing and positioning products and services to respond to that demand, creative advertising and promotion, multiple avenues of sales and distribution, and excellent customer service. This is particularly true now when so many businesses have cut back their efforts and there is so much opportunity to capture new market share, revenue, and profit.
Lastly, prospective sellers should be aware of the likely possibility of upcoming increases in state and federal capital gains taxes. Selling sooner rather than later might be the prudent course of action to realize the greatest actual return on investment.