This article are provided for information purposes only, and are not intended as legal advice.

Buying a business in this market – good idea?

December 5th, 2008

Prices are dropping on houses, investors are waiting until the stock market recovers, many companies are closing down for a period of time, should you be buying a business now?  I believe that there is an opportunity to acquire good companies when owners are panicking.  They are stating that over the next 10 years, $1 trillion of businesses will be sold or transferred to the next generation.  If there is no succession plan and an owner wants to retire in 3 years, if he believes that the market will deteriorate and affect the valuation of his business, he may sell now. If the ower of a business puts a high asking price, no one may want to buy the business figuring that it can be purchased at a lower price in a year.  Motivated buyers will price the business at a very attractive price because they do not want to risk getting a lower price in the future.

You can look at the housing market and see the similarities.  If no one wants to buy your house today, many people are taking the house off the market and will put the house for sale back in the spring.  If the market gets worse, the house will be worth less in the spring.  If you drop the price significantly today to ensure that you sell the property today, you will not have to risk that 1) you won’t be able to sell within a reasonable length of time and 2) you will get cash today which could be used to buy stocks/bonds etc which may be at a lower price in a few months. The question that the buyer of the business will have to ask is the discounted price worth the risk of buying today rather than waiting for a year or two.

Filed under: Buy a business — Gary Landa @ 10:07 am

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