Restaurant Broker Explains Why Now is the Time to Buy a Small Business

Posted by Eric Gagnon on Jan 19, 2009 12:31:00 PM

Washington Post headlines saying “The end of American Capitalism?  Predictions of the Dow to slide further and differing opinions on what each person should do with their 401K.  Economic bad news is the common theme of every headline.

The focus of this media attention is on giant businesses wreaking havoc on the overall structure of the nation’s economy.   Yet by most accounts, small businesses are the engine driving the U.S. economy.   According to the U.S. Department of Congress and a November 2007 SBA report, small businesses with less than 20 employees have created roughly 3 out of 4 net new jobs over the last 20 years.  Thus, while attention is on the bailout of the big guys, the economy’s recovery could well hinge on the actions of the would-be entrepreneur.  

 Clark Howard stated on his popular radio program recently that in the midst of the economic downturn, “Now may be the ideal time to try out that entrepreneurial idea you've always had.”   According to Eric Gagnon, President of We Sell Restaurants, Clark’s exactly right.  There are at least ten very good reasons to buy a business despite the economic downturn. 

The first reason is available inventory.There are more businesses available for sale higher when fewer sales are taking place in the slowed down economy.The second reason to buy is a lesson straight from the stock market.Getting in at the low offers the highest potential upside when the economy recovers.Some businesses must sell for reasons that can’t wait for the market to improve.Average prices are down over last year so anyone investing today is buying at a better “opportunity” price for the eventual upswing.

A third reason to buy is pricing.Space availability and rent concessions are a reality in this market place.Pricing on everything from raw materials to advertising is never better than when few are buying.If you don’t believe this concept, look at the rapid decline in the price of oil per barrel over the last thirty days.  

The adage from a song, “If you can make it here, you can make it anywhere” is the fourth reason to buy now.Buying a business in a down trending economy takes nerves of steel.Weather the storm with strict operations management and costs controls.This discipline will mean a huge boom to cash flow when the economy recovers.

The fifth reason to buy is the availability of a great talent pool.When the unemployment rate is high, employers can attract and retain the very best.

Seller participation is the sixth reason to buy.Capital and lending constraints have made it almost mandatory for sellers to finance part of the business.They no longer skip out the door, check in hand, waving “good luck” on their way out of town. Buyers and sellers have ongoing and vested interest in the continued success of this business.According to Eric Gagnon of We Sell Restaurants, keeping some “skin in the game” can result in a much better transition of the business.

The seventh reason to buy is also driven by lending.Economic conditions have created ‘never better’ seller financing opportunities for buyers.Those that could not be approved by lenders in the past are getting financing direct from sellers if they have strong down payments.Buyers with strong credit and cash that might have gone to the SBA for a start-up or franchise are now unwilling to wait on cash flow and choosing immediate results by acquiring second generation businesses (or franchise re-sales) with proven track record and profits.

Investors shaken by seeing their gains wiped out in a few short weeks are the eighth reason to buy.Buyers want control over their own situation where neither Wall Street nor Washington is calling the shots.Control over costs, expansion and policy start and stop with the small business owner.

The ninth reason to buy is taxes.Tax code changes are coming no matter which party takes over the White House.Owning your own business provides a great opportunity to maximize owner benefit and minimize tax liability.You and your accountant can control the taxes you pay based on legal application of the tax code.

The tenth and most important reason to buy now is the number of available businesses with strong returns on the books.These easily exceed current opportunities in the stock market or the safe harbor of CD’s, bonds or cash equivalents.A quick look through the Georgia Biz MLS listings show many businesses with double digit returns, something that’s a distant memory for most.  

“Given the choice of parking your cash at the mercy of Wall Street or Washington, most entrepreneurs simply prefer to bet on themselves “says Eric Gagnon, of We Sell Restaurants.

 The upside to this is that by growing small business and the underlying strength of the economy, they will ultimately, though slowly, move the giant failed market forward – one small business at a time.

Topics: Restaurant Brokers

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