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


Is this a good time to buy a business?

May 10th, 2010

I believe that over the last year, investors have realized that our economy is truly worldwide and what happens in one part of the world has an impact on another.  We are going through very uncertain times at the moment and there are several large items which are currently impacting decisions.  The oil spill in the Gulf of Mexico, the debt problems with Greece, the stimulus money being spent by all governments and the investigation whether the stock broker model in the US  needs to be changed, are stock brokers there to help you make money or if their prime business model for them to make money.   How does this impact your business for sale?

 

You have a small business in a town or city and are wondering how does world events effect your business? It does in many ways.  If you are exporting goods to Europe and the buyer is using euros, the cost of your merchandise skyrocketed and they may not be able to buy as many products due to the exchange rate.  If you are buying goods from Europe, your buying power increased significantly due to the devaluation of the euro.  How long will it remain low?  If you are planning your business, what exchange rate do you use, the current exchange rate, the future exchange rate if it recovers.  You now are required to speculate, not only are you buying or selling product made in a different part of the world, you now have to pay attention to the currency and determine if you need to hedge the currency to smooth your profits.  If you are selling a business, will the exchange rate impact your profits and the sale of your business?  Will profits go up or down in the near term due to significant fluctuations in exchange rates?

 

The stimulus package may temporarily  inflate the revenue and earnings of the business.  Will that revenue last for a long period of time?  Will the owner sell the business to a buyer not realizing that the business increased due to government spending and this is for a finite period of time?

 

Will the oil spill in the Gulf impact business with customers in the Southern USA.  Will business decrease because of the inability to get supplies, will the companies be able to get goods to market or will they have to find alternative sources of transportation.  If ports are coated with oil, they may have to transport goods over land or rail which can considerably increase the cost of the goods.  Will this force companies to transfer the manufacturing of goods to another location in the world if they are an international firm?  If they transfer the manufacturing to another location, will that impact your business?

 

Even though your business may not be involved in the world economic events, it could be impacted in a very material way.  Sometimes good, sometimes bad.  Is this a good time to buy a business?  It all depends on how each of these economic items impacts the business that you are looking to buy.


Filed under: Selling a business — Gary Landa @ 8:47 am


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