- The Washington Times - Sunday, July 13, 2003

There is a message for small businesses in a recent spate of mergers and acquisitions by multibillion-dollar companies such as apparel maker VF Corp. and trucker Yellow Corp. — your own climate for mergers and acquisitions is improving as well.

Brokers who help match people buying and selling companies say business has picked up in recent months, partly because of signs that the economy is improving, but also because many would-be entrepreneurs are looking to own their own firms.

“The downsizing of America and reshaping of companies and companies laying off midmanagement people have put a number of people in the marketplace,” said George Nathan, owner of Sunbelt Business Brokers in Cherry Hill, N.J. He said the winding down of the war in Iraq contributed to the growing interest in buying small businesses.

But for now, demand seems to be outstripping supply.

Tom Kiernan, president of Kiernan & Associates in Tucson, Ariz., said many small-company owners who are considering selling are holding back, hoping to get a better price as business improves. They also are waiting because their companies deliver better, more secure returns than other investments such as bonds or the stock market.

As a result, “we have a lot of buyer interest — more than we can handle right now — but we don’t have the inventory to sell them,” Mr. Kiernan said. “It’s a sellers’ market.”

But he predicted that more companies would go on the market by the end of the year, making it easier for people either to get started in business or to expand existing enterprises.

Buying a company obviously should be undertaken with the greatest care, particularly for someone who is looking to become a business owner for the first time. Both Mr. Nathan and Mr. Kiernan noted that being an owner requires a different mind-set than working for someone else. Every business has its own particular chores and paperwork to be dealt with. These are negatives that need to be considered along with all of a company’s positives.

“They need to select a business they’re comfortable with,” Mr. Nathan said of buyers.

To determine if a business is a good buy, you’ll want to look at the company’s books and have your accountant or attorney look them over as well. But Mr. Nathan noted that many small companies often have haphazard or nearly nonexistent record keeping.

“It becomes a challenge for a novice buyer to be satisfied with what they see,” he said.

Mr. Nathan said a would-be buyer also should look for clues to how well the business is doing. Consider, for example, the lifestyle of the owner. If an owner has put children through college and has a nice house, “the money had to come from someplace,” he said.

One option for first-time buyers is to use a business broker who can guide them through the process. Unlike real estate brokers, a business broker tends to work with either a buyer or seller, not both. Such an arrangement eliminates any conflict of interest.

Neophytes also may get some suggestions on how to be a smart shopper through the Service Corps of Retired Executives (SCORE), which gives free advice to small businesses. Its Web site is www.score.org, and its toll-free number is 800/634-0245.

For an existing company, buying another business can mean a chance to expand instantly instead of having to build revenue over years. An owner in search of another company needs to look at some of the same things that apply to a first-time owner, but also needs to think about how to integrate the operations.

“They have to merge the new company’s personnel and procedures with the existing one,” Mr. Kiernan said.

Business owners contemplating a sale also have work to do. Just as they would spruce up a home before putting it on the market, they need to clean up a company’s physical plant. And they need to get the books in shape, so it is clear to a buyer that this is a business worth owning, and worth paying a good price for.

That means getting rid of liabilities such as debt and bloated expenses, and making sure that relationships with customers remain strong. Without them, a business loses value rapidly.


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