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


When should you buy a business if interest rates go up, now or later?

April 15th, 2010

You have been looking to buy a business and have not been able to find one for a long time.  What do you do – what until prices come down or buy a business now?  I tell investors that if you are buying your first business, it often takes twelve months before you close your first transaction.  Why so long?  At first, you do not know what you want, you look for several months to find out what is out there.  Then you negotiate, put together a letter of intent, that can take 2 weeks to agree to terms, then you need 2 weeks to do  the due diligence, then it takes 2 to 3 weeks for the lawyer to prepare the purchase and sale agreement.  Basically, once you find the right business, it takes 6 weeks to 2 months or more to close the transaction.

 

If you have been looking for a business and finally find one, buy it now because it could have taken you months to find it or for some a year or longer.  Do you wait to see if the price will come down?  You can make an offer based on what you believe is the current fair market value.  Since businesses are so difficult to find, when you find the opportunity, you take advantage of that.

 

Many people when they start to look for a business do not know what they want to buy, they often know what they do not want to buy and that is why it takes so long to find a business because they do not know the business that they want to buy.  The hardest thing to do is find the right business for you.  Then you need to look at what the business is worth to you.  If you know that interest rates are climbing or the appreciation of the Canadian dollars will have an impact on profitability, you factor that into the purchase price that you offer to buy the business.  You may want to explain to the seller of the business why you offered that price so that they can understand why you did not offer the asking price of the business.  If they realize that what you said makes sense, they may accept your lower offer.  if they believe that you just low balled the price to steal the business, then they will not want to work with you to sell the business to you.  You do not want to insult the seller of the business but you want them to understand your valuation.  if they realize that they never considered  those issues, then maybe they will listen and work with you to consummate the purchase of their business.


Filed under: Buying a business — Gary Landa @ 9:31 am


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