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Business Sales Up in 2020 (Sponsored Content)

SBJ Economic Growth Survey: Silver Linings: Here's the forecast: Buyers outnumber the sellers

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In February, when the Springfield Business Journal took the community pulse through the 2020 Economic Growth Survey, nearly 60% of respondents said they expected the business sector to improve next year.

Then COVID struck, and by March, business had slowed as people sheltered in place. On April 1, a second survey showed 98.% of respondents were concerned or very concerned about the pandemic’s national and local economic impact; 66.8% said their confidence in the local economy had declined compared with 2019.

Yet, in spite of the pandemic and economic unrest, there’s high demand for buying small businesses. Titus Williams, president of Prosperiti Partners LLC, says historically low cost capital loan programs are driving sales.

“Depending on your business savvy and your ability to get financing,” he says, “now is a pretty good time to buy, all things being equal given the pandemic.”

Scott Axon, a broker with the Kingsley Group, says small-business sales are stronger than ever. “At the Kingsley Group, we are having the best year in our 35-year history,” Axon says.

In fact, the business brokerage has had a better year so far in 2020 than in all of 2019.

That aligns with national data. The third quarter insight report by BizBuySell.com shows business sales are trending up since the 51% year over year decline recorded in April. By September, that decline had narrowed to just 5% fewer transactions than in 2019. In addition, the survey shows buyer confidence in 2020 at a record high of 60 compared with 53 last year. While owners in that survey believe their business may have been valued higher in 2019, even pandemic-impacted businesses that pivoted successfully are attracting buyers, according to the survey.

While it’s not clear locally if there’s a pandemic-driven uptick in small-business sales, it does appear boomer-owned companies are changing hands. When they sell, high-performing businesses can retain the value retiring owners have built over time.

“The people that are retiring more than likely are selling because they had a good business, not because they have to liquidate,” Williams says.

On the other hand, Williams says, business owners that suffered in 2020 may simply want to exit by liquidating assets. Other owners may sell to avoid going through another pandemic-related rebuild cycle.

Axon believes stress over economic unrest has precipitated some sales.

“But we haven’t seen an avalanche of people wanting to exit their businesses,” he says.

In fact, there aren’t enough successful businesses for sale to satisfy demand. The demand, which he says predates the pandemic, is driven by low-cost financing.

“What that means is, if your payments are lower, you can make more money with the same sales and the same business, so it makes it more attractive,” Axon says.

Like Williams, Axon says the most profitable transactions are industry-driven.

“What we are seeing is a very Swiss cheese economy,” he says. “Some sectors are very solid, white hot. But there are holes in the economy.”

For some industries, such as hospitality, it’s almost like a deep recession, he adds. That’s why decisions to sell should depend more on the business than on the economy, he says: “If your business is very profitable, it’s a great time to sell.”

Zola Finch, executive director of RMI Business Finance, has seen an uptick in U.S. Small Business Administration loans over the last 12 to 18 months. As a certified development company, RMI offers the SBA 504 loan program for owner-occupied real estate and for-profit businesses.

“It’s what we call a 50-40-10 split,” Finch says, explaining that a participating bank provides 50% of financing, RMI provides 40% and the borrower makes a down payment of 10%.

With interest rates tied to the U.S. Treasury, borrowers can get 40% off financing on real estate or equipment for a 2.5% fixed rate for 25 years, she says – the lowest rates RMI has seen. The average blended rate between the bank and RMI, Finch says, is roughly 3.6% on commercial real estate and equipment.

“Those are very, very good terms,” she says. “So, this is a great time for people to take that leap.”

Reasons for selling a business vary, but ultimately Axon says, all owners exit eventually. In his experience, he says, people sell a business to achieve personal goals. Finch thinks COVID may be prompting some recent sales. And she sees a lot of sales among retiring owners who sell to their children or a family member.

Buyer motivation varies too. Williams thinks some people laid off or furloughed may be trading corporate employment for business ownership. If they built a financial cushion while receiving additional Coronavirus Aid, Relief and Economic Security Act funds, they may be in a good position to buy, given low-cost financing, he says.

The CARES Act also may factor into sales transactions, Axon says. Before selling a business, owners with Paycheck Protection Program loans must apply for loan forgiveness, then fund an escrow account in the amount of that loan until forgiveness is granted. Even so, buyers are protected from liabilities if they purchase assets of a business – equipment, furniture, customer lists, phone numbers, business names and more – versus the actual corporation or LLC which retains the debt.

“As long as you have solid professionals involved and there’s a clean transaction done correctly, the buyer in an asset sale doesn’t assume liability with a PPP,” Axon says.

Bottom line, there are deals to be had if you know where to look, Williams says, but he cautions against jumping at any opportunity: “You want to make sure that the business you’re investing in is going to be here, and recover, and be in a better spot after the pandemic than they are right now.”

This content brought to you by Prosperiti Partners LLC.

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