(This column originally appeared in the Inquirer)
Sales of businesses are picking up, according to the quarterly Insight Report from BizBuySell, an online marketplace of businesses for sale.
The report found a 5% increase in the number of businesses sold during 2024 compared to the previous year with companies in the manufacturing, building and construction, and online and technology industries showing the most growth. Selling prices rose 3% this past year, and the typical amount of time on the market for sold businesses was down 3%.
The data does not surprise Joseph Thompson III, a business broker with ASPIRA Business Brokers & Advisors in Cherry Hill, N.J.
“It’s a good time to buy a business,” he said. “The baby boomers are getting older and now the younger generations — particularly Millennials — who want a better work-life balance and more control over their days are looking to jump in.”
Many experts, like Thompson, say that there are more advantages to buying a business than starting a new one. Inheriting existing infrastructure, employees, customers, suppliers, and a brand — all which can take years to build — is valuable.
But buying a business isn’t easy. It requires capital, and the market is growing more competitive. If you’re thinking of buying a company, here are a few things to consider.
Use the SBA
The U.S. Small Business Administration has, via its network of certified lenders, a number of loan programs — particularly its Section 7(a) program — that offer financing to help purchase assets or acquire an existing target. Interest rates are competitive and because the loans are federally backed, approval is generally easier. But even the SBA has its requirements.
“You’ll still need good credit to get an SBA loan,” said Thompson, and most require a 10% to 20% down payment.
SBA loans don’t have to make up the entire financing package, noted Michael Lefkowitz, the founder and managing partner of the Benjamin Ross Group, a brokerage firm with offices in Philadelphia and three other locations.
“Many people I work with who buy businesses generally use the SBA for some of their financing,” he said. “But other financing forms — a seller’s note or another bank — are not uncommon.”
“Just know that you may still need to personally guarantee any loans, which may mean putting up your personal residence or other assets as collateral,” Lefkowitz added.
Be open to all opportunities and have a plan
Lefkowitz doesn’t believe in “hot” industries, just good businesses. Prior experience in the industry doesn’t have to be a make-or-break factor either.
“One buyer — an MBA corporate employee — bought a landscaping company because he believes it won’t be ‘put out of business by a kid who writes an algorithm,’” he said. “There are great businesses in any industry. It just depends how they’re run.”
Passion is important, Thompson said, but a long-term plan for the business is more critical.
“You just don’t want to buy yourself a job and be miserable,” he said. “When buying a business, you should be thinking of your exit strategy right away. Will you be running it for 20 years? Longer? What’s the plan for growing the business and what do you really want to get out of it?”
Accept risk
Owning any business requires a tolerance for risk, Lefkowitz cautioned, because risk comes with the job.
“When a buyer comes to me who’s from corporate America and starts talking too much about how risky a business is, my experience is that they are more apt to fail,” he said. “People who work at a corporation and then want to buy a company don’t understand that running a division isn’t risky. You still get your paycheck.
Minimizing risk is another reason first-time business owners may prefer to buy an existing company, rather than start one from scratch.
“When you start your own business, that’s a lot of unknowns and it’s a bigger risk,” said Thompson. “When you buy an existing business you tend to know more about what you’re getting.”
Be ready to move fast
As the competition for buying businesses heats up, potential buyers must be prepared to keep up.
“Between interest from private equity firms and corporate refugees, we get around 30–50 inquiries every day, and some of the businesses we represent only stay on the market a couple of days,” Lefkowitz said. “You have to jump on an opportunity fast.”
That means lining up professional advisers and information about yourself as a buyer — Lefkowitz’s firm recommends these and several other steps to prepare for buying a business. Thompson said his favorite buyers are the ones who are prepared.
“I like it when people are motivated,” he said. “They’ve arranged their financing in advance and have done their research. They’ve reached out to me in advance and told me what kind of business they’re looking for.”
