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Wednesday, Dec. 24, 2008

These Are the Best of Times—For Business Brokers

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Soaring unemployment. A plummeting stock market. Economic recession with no end in sight.

Things don't get any better for business brokers.

"The best years we had were under Jimmy Carter, when unemployment was 12.5%, and mortgages were 20%," says Jim Kops, owner of A-1 Business Brokers Inc. "[Business brokers] did very, very well, and that's what I think is right around the corner."

Kops says two factors are driving his business these days: the plunge in stock prices and rising unemployment.

"People are choosing income over long-term investment," Kops says. "They are pulling out of stocks completely and saying 'Get me income.' They're more interested in a regular paycheck than watching their investments grow."

And then there are the clients who have lost a job and, desperate for income, are betting their life savings on a business purchase.

"A guy called me an hour ago and said, 'Just get me a business. I'll take anything,'" Kops says. "What else can you do when you have a house in Brookfield and three little kids who need braces? You can't live on unemployment."

But buying a business isn't cheap. Most small businesses bought and sold in the United States are food- and beverage-related, and the cost of entry can be $80,000 or more. Some buyers, the successful ones, come with cash, because small-business loans are hard to come by.

This has led to a rise in businesses partially funding their own sales. "Sellers are typically financing part of the sale price themselves, with the banks picking up smaller portions than we've seen in the past," says Jim Schwai, owner of Metropolitan Business Brokers.

Schwai says the recession is motivating more business owners to sell than in the past, but he stops short of calling this a buyers' market. "We still evaluate a business for its true value, and the seller decides whether to sell it for that amount," he says. "We're seeing multiple buyers interested in the same deal."

Eric Ness, district director for the Small Business Administration's Milwaukee office, says SBA loan applications for southeast Wisconsin are down substantially from last year, although they are slightly higher than the national rate.

"Lenders who were selling and marketing last year tell me they are spending time looking at their portfolios this year to make sure they are successful," Ness says. "Most of the calls I'm getting are from people who are still in business and trying to stay in business. We're working triage, helping businesses make it through the next few months until the economy turns around."

The SBA does not lend money, but does guarantee loans for qualified buyers, who have the option of deferring payment up to 90 days. "We're encouraging lenders to take advantage of that option," he says.


Are You Ready To Start a Business?

Entrepreneurs are risk takers, and business ownership is not for everyone. That's why the Small Business Administration offers the Small Business Readiness Assessment Tool, available at www.sba.org. Sample questions include:

  • Have you ever worked in a business similar to what you are planning to start?
  • Would people that know you say you are well suited to be self-employed?
  • Have you ever taken a course or seminar designed to teach you how to start and manage a small business?
  • Do you consider yourself a leader and self-starter?
  • Would other people consider you a leader?
  • Are you willing to invest a significant portion of your savings or net worth to get your business started?
  • Are you prepared, if needed, to temporarily lower your standard of living until your business is firmly established?
  • Do you have a business plan for the business you are planning to start?
  • Do you know about the various loan programs that are available from banks in your area and the SBA?
  • Are you sure your planned business fills a specific market need?
  • Do you know your target market?


Definition

Deflation: Deflation is a persistent fall in the general price level of goods and services. It is not the same as a decline in prices in one economic sector or a fall in the inflation rate. (Source: Economist.com.)