By Domenic Rinaldi, Guest Columnist
During the recession, only the smart — or lucky — small business owners were able keep revenues growing. But 2010 brought some progress as many businesses increased their cash flow.
Why the change? Primarily, owners found ways to curtail expenses and become more efficient. This may have included improving a lease term, negotiating better vendor prices, moving toward higher-margin products and services, reducing expenses and adopting a more efficient business plan.
Certainly, companies have more work to do. Pre-recession levels are still far off for most small businesses, but the worst appears to be over and most experts are optimistic about 2011, especially in the business-for-sale marketplace.
So what does this all mean going into 2011?
We have seen a steady and increasing pool of buyers, including those looking to buy a job by buying a business. With larger companies eliminating many middle- and senior-level executive positions, a group of buyers with decent capital and a will to succeed emerged. While purchasing a business requires more capital than trying to find a job, these buyers realized that purchasing an existing company with built-in revenue, clients and employees could provide the most concrete employment option.
Fueling the trend are demographics that indicate baby boomers currently hold 8 million jobs in businesses they own and are expected to begin selling them. Many experts expected them to begin selling their businesses before now, but the recession and resulting low valuations forced many older business owners to hang tight for a better price. As the baby boomers age, many will eventually sell. When that time comes, expect a huge shift in the ratio of sellers to buyers. With more businesses available, sellers will need to show exceptional results to win buyers. So while we do expect more buyers in the market in 2011, watch for more sellers.
Based on current and anticipated behavior, banks are coming back to the small business acquisition lending market. As this becomes more common, buyers will be able to get the capital they need for a purchase. While many deals are smaller in size than they are during a booming economy, the trend bodes well for businesses with strong cash flow in the coming year.
Higher Business Value
Companies with solid fundamentals should see their valuations increase in the new year. As more buyers emerge and lending increases, top businesses for sale might attract a large number of buyers, creating a bidding war. With this auction-type atmosphere, buyers will need to increase their bids to win. And those business owners who have fought successfully through the recession will benefit from higher sale prices.
Advisors in Need
While many business owners have been reluctant to spend money that might not produce a near-term return, hiring good advisors such as a business broker, lawyer and accountant will pay off. Holding on to a business too long, settling for below-market value or panicking into a bad contract can have a drastic effect on a seller’s future. Coming out of a recession, maximizing profits and business fundamentals will be at a premium. Advisors are there to help, and the smartest owners will take advantage of them. Hiring experts allows owners to concentrate on keeping the business running smoothly while the advisors handle details of the sale.
Regardless of how 2011 plays out, one prediction will certainly hold true: Businesses that take the proper steps to prepare their business for sale will have a much better chance of achieving a successful exit than those that don’t.
Domenic Rinaldi is president and managing partner of Chicagoland Sunbelt, a business brokerage firm that focuses on helping people buy, grow and sell businesses in Chicago and the surrounding Midwest area. Rinaldi holds the professional designation of Certified Business Intermediary (CBI) from the International Business Brokers Association and is considered an expert in the business brokerage field.