Now Might Be a Great Time to Buy a Business

For those of you who are tired of working for someone else, here's an idea: how about buying an existing business and working for yourself? If you're up for the idea, the next several years could present a golden opportunity for you. Why? It appears that many businesses will be sold in the upcoming years -- and many at a discount from what they could have sold for in the past. The details:

With about 8,000 Americans turning 60 every day, more and more business owners are thinking about retiring. By 2009, an estimated 750,000 companies owned by boomers -- one in every six -- will be looking for buyers, up fifteen-fold from 2001.

A few other thoughts on how this will all play out:

• Most firms will sell to strangers -- Children today feel less pressure to run the family business, and even those that want to often find it tough to come up with the cash to pay off parents or other relatives who hold shares in the firm. Family in-fighting and prolonged legal spats also make family handoffs that much harder. Studies show that less than 15% of family businesses successfully make it down the third generation.

• Owners without an exit strategy will likely sell at a discount -- There will be fewer potential buyers, so a good price will be harder to find.

• One option that's growing more popular is selling to employees -- By either a management buyout or employee stock ownership plan (ESOP).

I've thought about buying an existing business in the past, and now doing so could be even more attractive. I'm putting this in my list of money making ideas and will start to get my feelers out there soon. Who knows, maybe I'll be my own employer in a few years.

Anyone else out there thinking the same thing? Or maybe someone has recently purchased a business?

Comments

[Amanda D]

Where do you even go to start looking for companies that are for sale?
Thanks

[Curtis]

Check out www.bizbuysell.com for tons of listings for businesses. I've definitely had this on my list of to do's for some time.

Plus, most businesses will sell with owner financing. That way you are sure you are getting something the owner has a vested interest in helping you succeed early on rather than disappearing. It can be difficult to get bank financing to purchase a small business so it can be a great deal. I should try to dig up the book I read by the guy who started Sunbelt Business Brokers and give a review of it and link back to your post.

[Matt Wolfe]

One of my good friends just purchased a little cafe from its previous owner. She thought it would be her dream job to redecorate and add new things to the menu. The place is really great and she's done a great job with it. The only problem is that now she's working 14 hour days as opposed to 8 and she makes about 3/4 of what she used to make. She's a great person with a lot of vision though. I think it will turn out well for her.

[Blaine Moore]

Rather than buying a business, I decided to start my own. The paperwork got filed with the state less than a month ago.

[claymeadow]

how is an esop a good idea? for instance,

1.) i am a profitable biz with no debt
2.) to convert to an esop the biz would have to come up a huge one time payment to pay off the owner. this would most likely happen by the biz incurring debt.
3.) biz is now an esop with a lot of debt.
4.) profit???
5.) i don't think so, i have debt to pay instead of capital to invest.

I know this is just a blog and there are no standards but really stick to your core, pf.

[Kevin]

@Amanda D - look in a trade publication classifieds - they usually have ads for businesses for sale. For example, I'm a CPA and the Journal of Accountancy has a bunch of ads every month. There are also business brokers that handle buying/selling.

@Claymeadow - why do you care if the business has debt, you're the ex-owner now? Any business that is sold will likely have to incur debt to change ownership. An ESOP is a great way to keep key employees and give them a real stake in improving the company.

[FinanceIsPersonal.com]

The only business I know is online publishing (you know, blogging), and so far that's been doing me pretty good. Instead of purchasing a business, I decided to expand my blog and turn that into a business! Thinking of my blog as a business was perhaps one of the wisest moves I've made this year. I've gotten a lot better hold on the accounting, have a very clear idea of what I'm making, am actively recruiting advertisers, and the like. My monthly profits have gone up considerably as well!

[Corey Rosen]

An ESOP is a good option for owners of profitable companies who want to sell their ownership interests. These owners may not want to sell to an outside buyer who will want to buy the whole company, not a piece of it), even if one can be found. They may prefer to see the business stay independent, reward loyal employees, or maybe they want to sell some now to diversify and some later when they retire. ESOPs can buy any percentage of a company.

ESOPs are financed out of tax-deductible future earnings and add a non-productive expense to the company. But short of selling to an outside buyer, any other redemption strategy within the company incurs future costs, and they are not tax-deductible. Managers rarely have the money (which would be all after-tax) to buy the business, so that is usually no an option. Moreover, sales to ESOPs can qualify the seller for deferral of capital gains taxes.

The ability to use an ESOP to borrow money and repay it in pretax dollars also makes them an attractive way to buy an asset. Otherwise, a company has to borrow money and repay it in dollars that are tax-deductible only as to interest payment (not principal as well,as with an ESOP) or use accumulated earnings, on which it has already paid tax.

ESOPs require that stock be allocated to most or all employees in a way that does not discriminate more than relative pay would indicate. It's held in a trust until the employees leave. ESOPs rarely make sense for companies with fewer than 15 or so employees, and even more rarely for companies not make a profit.

Details on ESOPs can be found at the non-profit web site www.nceo.org.