Selling a business successfully requires a number of factors, not only related to the quality of the company and the offering terms, but also the external influences working in the marketplace. California business sales statistics (compiled and reported on the BizBen Index) help to reveal that one or a combination of the following factors greatly influence how many businesses are sold in California each month.
Selling a business influences include:
1. Holidays or life events: The Christmas celebration, or a milestone birthday of a seller, are examples of occasions that either can speed up or slow down the selling process. Holidays and other diversions that involve family events, often interrupt the marketing effort or delay scheduling the completion of an agreement. But sometimes the reverse is true. An owner who wants to sell by the end of the year, or before his daughter graduates from college, will be motivated to push for quick negotiations, a short due diligence period and a closing date scheduled ASAP.
2. Job market: Corporate downsizing in a community almost certainly will put demand pressures on the local selling a business market. While most people out of work seek employment elsewhere, there are entrepreneurs among the newly unemployed who plan to buy a business for sale.
3. Financing availability: The recent financial meltdown offers a clear case study of how a shortage of funds from lenders can negatively impact the demand for small and mid-sized businesses. The slowdown in volume of businesses changing hands in late 2009 and through much of 2010 was a direct result of the shortage of money needed to complete transactions. Loosening of the purse strings in the past few months has resulted in a more robust business sales environment.
4. Stock market and investments: When faced with alternatives, investors put their money where they expect the best combination of high return and low risk. But these motivations don’t always result in the same behaviors. A booming stock market influences some entrepreneurs to divert excess funds into corporate equities. For others, it’s a chance to profit by selling current investments and–encouraged by the more positive economic outlook–to enter the business for sale marketplace.
5. Real estate equity: The decline in home values and the pressures it put on the economy during the past three years influenced many would-be business buyers to “watch and wait.” When entrepreneurs had substantial home equity they were far more tempted to use their resulting borrowing power to purchase a small business for sale. As equity disappeared however, individuals not only had less financial ability to make a business purchase, they also became less positive about their chances of success owning a company in a troubled economy.
6. Consumer sentiment/confidence: For the most part, someone considering the purchase of a small or mid-market business will delay moving forward on that idea when polls show that most people are worried about the economy. That’s not the time to get into a retail company or even most business-to-business enterprises. For bargain-hunters in the business for sale marketplace however, a decline in consumer confidence signals the possible opportunity to acquire a sound business at a “distressed” price.
7. Businesses for sale supply: Like any demand and supply dynamic, the availability of good businesses for sale strongly influences the market, the prices, and the likelihood of finding a buyer. During a healthy economy when business owners enjoy strong profitability, business buyers find it more difficult to find a desirable company for sale and to get sellers in agreement on prices that can easily be paid off. It’s often the predictions of a sagging business climate that motivates more owners to quickly implement their exist strategies.
8. World events: Much like the stock market that reacts to news about changes to the political landscape and natural disasters, the market of small businesses for sale can be influenced by major events–even those events well outside of the business world. A retail business owner, for example, may delay her plans to sell if she concludes that a natural disaster in a nearby community will hurt the marketability of her enterprise for a while.
While it’s important to look at the profitability and pricing of a business for sale to determine the chances that a buyer will be found in a short period of time, there are key external factors that can determine the likely success of someone selling a business.
The easy part is knowing some of the factors that can influence the marketplace for small and mid-sized businesses. The hard part is understanding which factors have the most influence at any one time, and exactly how each affects the marketplace. Some business owners do report, incidentally, that by following the BizBen Index and collecting ideas and information from the BizBen Blog pages, they are able to gain insights about how various factors might impact their plans for selling a business.