Thirteen Reasons Why 2016 Is a Great Year to Sell or Buy a Business

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Reasons to Sell:  

1. With millions of unemployed workers living off of their savings and retirement plans, there is a high demand for good businesses. And due to the unprecedented demand, multiples of Owner’s Discretionary Cash Flow can sometimes exceed 3 where in the past the multiples ranged between 2 and 3. Thus there will never be a better time to put your business up for sale.

2. Since unemployed people have had their 401k plans and savings devastated, and they are tired of only earning .25%, they need an alternative plan. The tax code allows them to purchase a business using retirement funds and creating a C Corporation. Once the Corporation is created, all profits can grow tax free, and the new owners are not obligated to disburse profits, dividends or salaries.

3. If you are in your late 50’s or early 60’s, there is no way to know what the future may hold. Regardless of your current health, it can change unexpectedly. Or you may have issues with aging parents. By selling now, you can remove some of the uncertainty.

4. If you are willing to provide owner financing for some of the purchase price, you can earn interest in the range of 6% which is more than 20 times what a bank will pay you.

5. SBA financing is loosening up which will allow more prospective buyers to have an opportunity to buy your business.

6. There comes a time when quality of life becomes more important than money. Only you can decide if obtaining freedom trumps obtaining money and to what extent.

7. There are investment vehicles that will allow you to defer most or all of the seller’s proceeds. Thus there will be little or no tax liability due in the year of sale. You can work with a financial professional to set up a residual income stream that will meet your needs and spread the capital gain over many years.

Reasons to Buy:

8. Many baby boomers are reaching the retirement age of late fifties or early sixties. From my experience, the most common age when business owners call me is 62. They are tired of working 40+ years since high school, the last 15 to 20 years as owners of their own businesses. The available supply of good and well established businesses has never been greater.

9. When you find a business you want to buy, the owner will be more receptive to both traditional and creative financing. Traditional financing would be where an owner holds a note for part of the purchase price. Interest rates are roughly 6% for owner notes at the current time. Creative financing would be assumption of liabilities or earn outs. Earn outs are based on a percentage of sales above certain thresholds.

10. SBA preferred lenders are more willing to make loans due to relaxed federal guidelines and the elimination of certain costs and fees. While you will not be able to obtain an 80% loan like the good old days, you should be able to easily obtain a 65% loan with you making a 25% down payment and the owner holding a 10% note.

11. Vendors are highly motivated to make sales. Their businesses have suffered financially during the last 2 years. As a result, you should be able to purchase inventory, supplies and other materials at substantial cost savings.

12. Due to the millions of unemployed workers, the labor pool is loaded with qualified and motivated prospective employees. Additionally, existing employees at the company you purchase will be highly motivated to stay with the company, since finding another job will be quite difficult.

13. You are now able to use 401k funds, IRA funds, Sep-Ira funds, etc. to purchase a business. There are many tax advantages to doing so, and you can control how much you may yourself for salary and how much you keep within the C Corporation tax free.
  • Author: Loren Schmerler
  • Title: Business Broker - Owner
  • Company: Bottom Line Management, Inc.
  • Company Website: http://www.botline.com/
  • Date: September 15, 2016
  • Category: Buying a Franchise or Business
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