Could there be a better time to buy a business? (March 2009)

Could there be a better time to buy a business? (March 2009)

This is an excellent time to buy a business say Beardsley Theobalds – the westcountry and midlands based specialist business transfer agency - and here’s why :-

If you are considering the idea of acquiring a ‘going concern’ business and you need to raise capital to enable you to buy, commercial finance has never been cheaper and, for businesses in the sectors in which we operate (see below), is no more difficult to arrange now than was the case prior to the credit crunch!

Naturally, you will need to have a certain amount of cash and/or some security (e.g. equity in property and/or, for example, in an endowment policy, etc.) – typically around 50% of the cost of acquiring your selected business – but that has always been the case. In addition, the business will need to be making substantial profits (i.e. well above the value of the owner/s time working in the business and the cost of repaying the loan) and you will need to be able to demonstrate your ability to successfully manage the business. Again, no change there.

What is very different today is the cost of a commercial loan. With interest rates at an all time low, fully secured finance can be arranged typically at around 2½% to 3% over the Bank of England Base Rate (BBR) – so that’s just 3½% to 4% at the present time and could be even lower in the near future. And, at these rates of interest, borrowers could (if they wish) pay off their loans much quicker – say over 5 to 7 years instead of 10!!

Of course, you will need to be highly selective with your choice of business. Some sectors, including for example niche manufacturing, distribution and business services (the business sectors in which we operate) are often much more profitable and are therefore more popular than many other sectors. Also be aware that, very often, businesses which are well established and quite successful are crying out for the additional skills and experience that a new owner can bring to the party. And remember: active searching, research and due diligence can help you to find exactly the right business for you.

Consequently, if you want to be much more in charge of your own destiny and get a significant return on your capital, an investment in a going-concern business may well provide you with just the opportunity you are looking for – especially if you can find one which is doing very well thank you despite the general economic downturn. Finding and acquiring a good/profitable business at this time in the economic cycle should auger well for the future of the selected business – you will have entered the market at exactly the right time.

Sounds too good to be true? Not at all, but you do need to find an appropriate, quality business and there are more people than ever before seriously considering buying businesses. For example, we at Beardsley Theobalds have seen a 38% increase in buyer demand during the last 9 months. Those people who were already looking to buy have been joined by considerable numbers of people who have been, or are about to be, made redundant (and never want to experience the possibility of being in a similar position again) together with those who want high returns on their capital (people who have previously done well in such as the stock market but not of late!) but with some control over their money and also those who have lived reasonably comfortably off interest on their capital but can no longer do so.

Clearly, you’ll have to counter the increased buyer competition if you are to achieve your business acquisition objective, but if you want the rewards that owning a business can bring, it will be well worth the effort.

So, if you are serious about buying a business, what are you waiting for?

Roger Mundy, Managing Director

Beardsley Theobalds (01392 253071)