A strong market has made buying conditions virtually perfect. Entrepreneurs can chose from an abundance of quality and highly profitable businesses for sale. Of course, such a large investment still demands diligence and planning. Buyers must ensure there is real value in the business they hope to invest in. Moreover, they must ensure they are equipped to run the business, and that they incorporate shifting labor and other market trends into their overall assessment of value and profitability.
Here are the key things small business buyers must know in 2019.
The Role of Interest Rates and SBA Loans
SBA loans are a primary method of financing small businesses. The SBA has never offered a friendly or more accessible lending space. It is aggressively funding loans for profitable businesses and well-qualified entrepreneurs. These loans boast lower down payments with flexible requirements, though it’s important to note that interest rates could increase.
The Federal Funds rate will likely reach 3.1% by the year’s end. This is a significant increase from 2.4% in 2018. When government interest rates rise, banks follow suit. As rates continue to increase, it is important for buyers to critically assess options and consider whether the best option might be a traditional loan. For now at least, such a loan may offer a lower interest rate than an SBA loan.
Retiring Baby Boomers
The boom in Baby Boomer retirement is fueling the market. Retirees leave behind a selection of profitable businesses with strong financials and excellent prospects for growth. Two thirds of Boomers say their business is profitable, so buyers have the chance to acquire some outstanding and well-run businesses.
More than 70% of Baby Boomers will sell their businesses in the next decade or two. So there will be plenty of opportunities now and in the future, though we can’t be sure how favorable the market will be going forward. As with most things, the present is the only certainty.
The unemployment rate suggests a small pool of qualified workers. So even though the market is healthy and prices are high, it’s increasingly difficult for smaller businesses to compete with what larger corporations can offer in terms of pay and benefits. Operating and labor costs can significantly dent profits. Potential buyers must consider these costs, as well as the labor competition from larger businesses, before investing. Don’t allow boundless optimism to drive a false sense of security, or to justify potentially costly purchases.
Today’s buyers must research prices to assess what similar businesses go for. Then they must look at overall value. How much will it cost to run the business, and how might that figure change with time? The answer to this question can either increase or decrease value. For the best assessment, consider working with a skilled advisor who can help you understand market forces, best practices, and industry-specific trends. Doing so can make your foray into 2019 business ownership a successful and lucrative one.