Business Broker Survey Confirms Owner Financing On Rise
I recently received the survey results from a major online multiple listing service for businesses for sale. The survey conducted included over 1700 business brokers in the US.
The report clearly established some trends I have been reiterating in my blog lately. In particular, the trend towards more owner financing in the deal structure. Because of the economic downturn and credit crisis, traditional bank and SBA financing has been much more difficult to acquire for buyers. Especially when there are no “real” assets involved like real estate or capital equipment. Banks still seem to have a bigger aversion towards ‘virtual’ real estate or internet businesses even though the financial statements are solid and show stability!
Consequently, buyers who are willing to make fair market offers that a seller is likely to accept are requesting owner financing of 20% – 50% depending on the deal. In the case where cash flows are strong and growing the percentage is less and higher when the sales trend is flat or in decline. This allows a reasonable and fair market price to be accepted, as well as keeps some ‘skin in the game’ as it were, for the seller – an often important element for buyers who consider this an act of confidence in the business’s future.
The seller benefit is getting closer to their asking price and actually earning interest on their money in an investment they are familiar with and have more control over. A big issue for sellers is where they will invest their funds upon selling their business? With the uncertainty and volatility in the stock and bond markets and real estate and the ultra low interest rates for bank savings, there are not too many good options to invest larger sums of money at the close. So, doing some owner financing at a fair rate – say 8%-10% – can be an excellent long term strategy for a seller to contemplate.
Another aspect the survey unveiled was the time frame it is taking, on average, to sell a website business has increased by 3 months to an average of 12 months. This is the time from attracting a buyer to completing the close. Now, the vast majority of these deals are traditional brick and mortar which tend to take longer to close, however, we have experienced a similar trend from our previous average of 4-6 months , now stretching to 7-9 months. Of course a lot of this has to do with the attractiveness of the business opportunity as well as the price and flexibility of the seller.
We recently sold an ecommerce website that was listed and closed within 2 1/2 weeks – the niche, the price and the terms were all attractive and an ideal buyer was there to acquire it! The seller was also very organized, had clean books and detailed information available, and was very flexible and reasonable with regards to the fair market price.
So, despite the economic doldrums we find ourselves in, there are still internet businesses being bought and sold regularly. The keys are to maintain flexibility in the deal structure, be organized and prepared for intense scrutiny, and find a balanced selling price that is fair and acceptable for both parties.