Is now a good time to buy another business?

When the economy has an extended down cycle, like what we have experienced for past couple of years, the value of many small businesses tends to drop. At one time I worked for a very large conglomerate that would acquire as many as 100 new businesses a year. In fact a big part of my job was to constantly be looking for and evaluating small businesses that had some synergy with the existing companies we already owned. Buying another company is not something that is limited to huge corporations. You might be surprised to learn that many of your small competitors and even small businesses that serve markets adjacent to yours are looking to bail out during difficult times. It may not take as much money as you think to grow your business rapidly.

I will offer a few guidelines you should consider before you go on a buying spree.

1. Don’t consider acquisitions, unless your existing business is stable. Integrating another business into yours will take a lot of time and effort and your existing business should be able to keep going without your care and feeding for a while.
2. Look for businesses that are direct competitors or serve the same or directly adjacent markets to where you already are. If you don’t already understand the products or services your target sells, don’t buy it thinking you will learn about their business after you own it.
3. Don’t just look for bargain basement companies that are in trouble. The process of integrating and succeeding with an acquisition is much easier if the acquisition is not already on life support. There are people called turn-around specialists that make a living out of buying and “turning around” struggling businesses. The changes are, you don’t have all the skill sets a team of turn-around specialists has.
4. Do include your “team” in the process. If you have some good people working with you, or even a team of trusted outside advisors, use them for their expertise. Also depending on the size of your acquisition, you might pick up some great “new” team members.

Finally there are some significant tax advantages to selling a small business right now. If you own stock in a “Qualified Small Business” or Qualified Small Business Stock, 50% of the gain from selling that stock is excludible from calculating taxes and the maximum rate of tax is limited to 28%. There may be some motivated small business sellers looking to make a deal as the terms of QSBS exclusions will start changing after 2010 until it is completely phased out in 2014.