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Business Broker • M&A Advisor
Inland Empire • Los Angeles • California |
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BusinessQuest Newsletter
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February 2009
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Current Credit Climate and Some Financing Alternatives
Historically, business owners have typically sought financing
for working capital, machinery and equipment and acquisitions
from several different sources. Although such
financing has been traditionally provided by banks, the
SBA and specialty finance companies, business owners
now face a dramatically altered financing landscape.
We are in the midst of a credit and
capital constricted marketplace
that is shaping up to be the most
challenging financial environment
in more than 75 years. In broad
sectors of the marketplace, credit is
simply not available at any price. Even
when available, we now see major financial
institutions paying record high interest
rates for financing, some examples being GE
and GMAC at 10% and CIT at 12%.
For business acquisition financing, in particular, the financial
marketplace no longer provides ready access to credit.
Because of current market conditions, in many instances
bank financing is generally available to prospective business
owners or even to businesses with proven track records
seeking to expand through acquisition. While the SBA is
still active, its stricter underwriting and collateral requirements,
along with other issues, have resulted in a dramatic
decline in their market presence over the last year. The last
category of lender, specialty finance companies, still provides
a financing alternative, especially for business
acquisitions.
One example of this in the area of acquisition
financing is Pendarvis Capital
Group, a specialty finance company
working primarily through the business
brokerage community. Pendarvis
Capital provides acquisition financing
to prospective business
owners based on the underlying
business’ cash flow with no formal
collateralization ratio requirements. For new
and existing business owners looking for acquisition financing,
Pendarvis Capital offers an attractive financing
alternative in an otherwise constrained credit environment.
For more information, visit www.pendarviscapital.com. |
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Planning early will maximize return froma liquidity event
By John Hoffman
During chaotic economic times as well as in
calm markets, private equity firms, strategic
buyers, financial buyers and publicly traded
firms are often seeking to purchase privately
held businesses. Timely planning can ensure
that you and your family maximize the value
of your business in a sale. Time is your ally in
planning for your financial future, and never
more so than when your family firm is being
sold.
When you suddenly find your business in play,
how can you be sure if you are ready to sell?
Chances are you won’t know. Most business
owners are focused on day-to-day concerns
like inventory, cash flow, hiring and sales; they
don’t see the need for presale financial planning
or are reluctant to think about selling
their biggest asset. But if financial advisers are
brought into the discussion early enough (as
much as a year in advance), there’s time for
them to look broadly at your situation.
Your advisory team should include not only
financial professionals but also a trusted network
of friends, business associates and attorneys.
Together they can coordinate a process
to prepare you for a liquidity event, whether
it’s a private sale or an initial public offering.
They can also point out—ahead of time—opportunities
to achieve specific goals that can
be realized in sale negotiations.
Asking tough questions
Most business owners are too busy to consider
how they want to protect and transfer their
wealth until a sale has been proposed. But
it’s never too soon to ask yourself the crucial
“disturbing” questions that may spur the soulsearching
required for thoughtful financial
decisions.
These questions should go beyond basic estate
planning to help you maximize proceeds from
the liquidity event and identify how to deploy
your new wealth. For example, have you
thought about what legacy you want to create,
or what you would like to do after the sale?
Do you know how the proceeds from the sale
of the business would be split up among family
members?
Potential sale outcomes
It’s vital to discuss the potential sale outcomes
with family members who are involved in your
business to help identify potential long-term
objectives. For example:
• Full sale for maximum liquidity. This
would involve your selling the entire business
outright and leaving to pursue new
endeavors.
• Partial liquidity with retention of some
assets or ownership. This consideration
may be most effective with a private equity
fund buyer who will ensure a second
liquidity event in seven to ten years. |
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U.S. Metro Areas
Exhibit Economic
Strength
A recent survey conduced by Bizjournals
shows that, despite the current economic conditions,
some metropolitan areas across the
country are still thriving.
Bizjournals has been analyzing the top 100
metropolitan markets for the past five years
to determine which areas have experienced
strong, steady growth. Las Vegas tops the list
of “America’s Growth Centers,” with Raleigh
and Cape Coral-Fort Myers, Florida rounding
out the top three.
To determine America’s Growth Centers, the
research and analysis focused on population,
private sector employment, per capita income
and gross metropolitan product.
“America’s Growth Centers” also noted the
top three performers in each of the different
categories analyzed in this survey:
Population - Cape Coral-Fort Myers led
this category with a growth rate of 24.4%
over the last five years. Raleigh and Las
Vegas followed close behind at 21%.
Private Sector Employment - McAllen-
Edinburg, Texas led the way with
a 28.6% increase in private sector jobs.
The runner-ups were Las Vegas and
Cape Coral-Fort Myers.
Per Capita Income - New Orleans was a
clear leader for per capita income growth
with a rate of 42.7%. Las Vegas and Honolulu
also had substantial growth rates
of 29%.
Gross Metropolitan Product - Baton
Rouge, Louisiana experienced a growth
rate of 68.7%. Las Vegas and Bakersfield,
California completed the top three. |
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Even in Today’s Economy, It’s Still a
Great Time to Buy a Business
The stock market hits record lows. Unemployment
on the rise. Home foreclosures
continue to set records. Headlines like
these decorate our newspapers and news
websites nearly everyday. It is easy to understand
why many have become cautious
of the traditional investment options, such
as real estate, stocks and IRAs.
Despite today’s economic environment,
buying a business is proving to be a viable
investment option. Buying a business allow
individuals to “invest in themselves,” as
opposed to risky real estate or stock market
investments. Business owners looking to sell
are aware that they must have a profitable
business that can sustain success, even in a
slow economy. This presents today’s buyers
with investment opportunities that have a
proven track record for success.
With today’s tight credit market, financing
remains a concern for many. For those
looking to buy a business, there are alternatives
that assist buyers in purchasing an
existing business.
Aside from traditional bank financing and
SBA loans, there are other forms of financing
available from specialty finance companies
and specialized programs that enable
buyers to borrow from their 401k or IRA.
However, seller financing has increased in
popularity.
While most sellers would prefer “all cash” transactions, most are willing to hold some
interest bearing notes as part of the proceeds
of their business sale. This reduces
the buyer’s reliance on third-party financing
and it also shows the seller’s confidence
in the future of the business.
Business sales will continue in today’s tough
economy, enabling people to invest in themselves
and have the career of their dreams.
With any business opportunity, research
the company and obtain professional advice
from your business broker. |
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The (Near)
Future of the
Internet and
Your Business
The Internet plays a prominent
role in today’s small
businesses and these upcoming
changes offer more
accessibility and flexibility,
while potentially decreasing
the cost of doing business:
Faster Communication.
According to the Telecommunications
Industry Association,
over 85% of Internet
connections in the U.S.
will be broadband connections
by 2010. Broadband
speeds will also be much
faster, with speeds of 100
megabits, as opposed to
today’s 1-5 megabits connections.
Free Access. Free Wi-Fi
access will be more readily
available from local governments
and retail businesses,
continuing to change
where we do business.
Access on the Road. Internet
access is beginning
to be offered in today’s automobiles,
redefining th
meaning of the “traveling
salesman.”
Smart Phones. Less than
5% of today’s cellular
phones are “smart phones,” or phones with Internet access.
Intuit predicts that by
2012, most cell phones will
be smart phones. |
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