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


When is the best time to buy a business?

November 5th, 2009

Many businesses are cyclical therefore the timing of when you buy a business can be very important.  If you want to buy a retail store, the Christmas season has large sales but in the months of January and February, the sales have been traditionally very slow.  If you were to close the purchase of a store immediately after Christmas, you will have bought the store at the slowest part of the year.  You may have losses in the first months after you bought the business.  If you bought a business which stretches your financial ability, you will become very disillusioned quickly if you start to lose money the day you took over the store.

 

The best time to buy a business is just before its busy season.  If you are the seller of the business, you want to sell just after the business season.  One thing to ensure in your purchase and sale agreement should discuss what happens if a customer returns a product to you under the new owner but it was sold while the business was owned by the old owner?  If you are for example a wholesaler and you there was a lot of inventory and you wanted to generated profits, you could reduce the selling price of certain goods to improve sales under your stewardship.  Unfortunately for the new owner, you may have sold the customer say three months of goods when usually they purchase one months of goods at a time.  After the change of ownership, sales may be lower for two months because the old owner sold them product that they did not need for a while to take advantages of the sale.  All purchase and sales agreements should ensure that the business is conducted in a normal course of business and this type of situation cannot take place.

 

In France and many countries in Europe, the employees go on vacation for 6 weeks every July and August.  It may be a good time to close the factory and do a major renovation/cleaning but it would be a bad time to buy the company because no sales would be generated in this period of time. 

 

Some companies have a constant cash flow month after month therefore the timing of closing a sale is not critical.  If you found the right business and it is for sale but the owner wants to close in January when sales are the slowest but refuses to postpone closing until March or April when sales improve, you need to ensure that when you purchased the business, the price reflects the time of year that you will be closing the sale.  Remember, it is hard to renegotiate a purchase and sale agreement at the eleventh hour although I have seen this done on one occasion.


Filed under: Buy a business — Gary Landa @ 10:24 am


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