If you keep seeing “Under New Management” signs all over the place, you’re not imagining things. Rick Hayden, founder of Richmond-based ABBN Business Brokerage, says he has seen a boom in the number of people looking to buy an existing business.
After a career in electronic sales and a bit of time working in mergers and acquisitions, Hayden started ABBN in 1999. The company also has offices in Fredericksburg and Roanoke, and Hayden said he is acquiring an office in Hampton Roads. He said he has six brokers working for the company.
BizSense spoke with Hayden about the market for buying and selling businesses.
Below is an edited transcript.
Richmond BizSense: How has the economy affected the number of people looking to buy a business?
Rick Hayden: From an acquisition standpoint, we are seeing a definite increase in people looking to start a business. A lot of corporate downsizing is affecting that, and we are getting inquiries constantly. Inquiries typically always increase in the first part of the year. Most people seem to make life changes after they look back and reflect on the previous year.
RBS: Why do you think there is interest in owning a business right now?
Hayden: I’ve worked for large corporations and now worked for myself for over 15 years. Once you work for yourself, it’s difficult to go back to the corporate structure. The accountability for you to make income is always there, it doesn’t matter if you work for someone else or you work for you. The accountability shifts, and it’s a different type of accountability. In many cases it’s more demanding, but those with an entrepreneurial spirit really enjoy it.
RBS: Has the economy affected the number of people looking to sell their existing business?
Hayden: I haven’t seen a difference as far people rushing to sell their businesses. Those that have their own business that are successful right now are leveraging against that stability. But it’s a great time to sell a business right now if someone is entertaining that idea. For a seller, those parties that are interested with financing will probably pay a little more for a business today than they would have a year ago, if the dynamics of the business are just as sound. The reason is because it’s a better investment. With the economy the way it is now, if your business is doing the same today as it was last year, your business would be worth more today than it was last year. It’s not uncommon to say a business will sell for the range of one to five times its cash flow, depending on the industry.
RBS: What is the most common reason you see for someone looking to sell their business?
Hayden: We see people that want to sell their business because it is not providing the cash flow that the business should be providing, which could be because of the economy. We also see people that are selling the business for retirement reasons. Some people are just burned out on what they do. They started the business and raised it to a certain level, and feel its time to move on and use their talents in other ways. I’d say the reasons are a balance between those three. It’s not uncommon to see a business seller find something else that is intriguing and end up buying a new business.
RBS: Have you noticed any changes in regards to how people are financing the purchase of a business?
Hayden: Business owners in today’s market may be required to do some owner financing. However, if the company or owner isn’t capable of doing that, you see more and more facilitate their 401(k) and put the money into a corporation and use that for financing. Someone buying a business that is high risk from the bank’s perspective may not be able to get traditional financing. Those who have the option are using their 401(k) to leverage that money.
RBS: When people come to you to buy a business, how do they choose the right opportunity?
Hayden: Most of the time they do not know what they are looking for. Through interviews and looking at their qualifications we help them find the right fit. Most of the time, the first business they look at – it’s not necessarily the business they buy or show interest in. The skill sets they have, they may not have considered using them in a different type of business. We help them decide to see if that is the right match. A lot of people I have sold companies to in this market have come back and sold their company through me and look to buy another company.
If you keep seeing “Under New Management” signs all over the place, you’re not imagining things. Rick Hayden, founder of Richmond-based ABBN Business Brokerage, says he has seen a boom in the number of people looking to buy an existing business.
After a career in electronic sales and a bit of time working in mergers and acquisitions, Hayden started ABBN in 1999. The company also has offices in Fredericksburg and Roanoke, and Hayden said he is acquiring an office in Hampton Roads. He said he has six brokers working for the company.
BizSense spoke with Hayden about the market for buying and selling businesses.
Below is an edited transcript.
Richmond BizSense: How has the economy affected the number of people looking to buy a business?
Rick Hayden: From an acquisition standpoint, we are seeing a definite increase in people looking to start a business. A lot of corporate downsizing is affecting that, and we are getting inquiries constantly. Inquiries typically always increase in the first part of the year. Most people seem to make life changes after they look back and reflect on the previous year.
RBS: Why do you think there is interest in owning a business right now?
Hayden: I’ve worked for large corporations and now worked for myself for over 15 years. Once you work for yourself, it’s difficult to go back to the corporate structure. The accountability for you to make income is always there, it doesn’t matter if you work for someone else or you work for you. The accountability shifts, and it’s a different type of accountability. In many cases it’s more demanding, but those with an entrepreneurial spirit really enjoy it.
RBS: Has the economy affected the number of people looking to sell their existing business?
Hayden: I haven’t seen a difference as far people rushing to sell their businesses. Those that have their own business that are successful right now are leveraging against that stability. But it’s a great time to sell a business right now if someone is entertaining that idea. For a seller, those parties that are interested with financing will probably pay a little more for a business today than they would have a year ago, if the dynamics of the business are just as sound. The reason is because it’s a better investment. With the economy the way it is now, if your business is doing the same today as it was last year, your business would be worth more today than it was last year. It’s not uncommon to say a business will sell for the range of one to five times its cash flow, depending on the industry.
RBS: What is the most common reason you see for someone looking to sell their business?
Hayden: We see people that want to sell their business because it is not providing the cash flow that the business should be providing, which could be because of the economy. We also see people that are selling the business for retirement reasons. Some people are just burned out on what they do. They started the business and raised it to a certain level, and feel its time to move on and use their talents in other ways. I’d say the reasons are a balance between those three. It’s not uncommon to see a business seller find something else that is intriguing and end up buying a new business.
RBS: Have you noticed any changes in regards to how people are financing the purchase of a business?
Hayden: Business owners in today’s market may be required to do some owner financing. However, if the company or owner isn’t capable of doing that, you see more and more facilitate their 401(k) and put the money into a corporation and use that for financing. Someone buying a business that is high risk from the bank’s perspective may not be able to get traditional financing. Those who have the option are using their 401(k) to leverage that money.
RBS: When people come to you to buy a business, how do they choose the right opportunity?
Hayden: Most of the time they do not know what they are looking for. Through interviews and looking at their qualifications we help them find the right fit. Most of the time, the first business they look at – it’s not necessarily the business they buy or show interest in. The skill sets they have, they may not have considered using them in a different type of business. We help them decide to see if that is the right match. A lot of people I have sold companies to in this market have come back and sold their company through me and look to buy another company.
I agree with Rick that buyers and sellers have to be more creative with financing a business purchase/sale in this environment. Our law firm has seen virtually no bank-financed transactions in the past 12 months. What we have seen is a lot of cash deals under $500,000 along with 401(k) money, HELOC, and seller financing. Right now we have a few buyers interested in private placement securities offerings to finance their deals. Also, buyers are asking for adjustments to the purchase price based on the performance of the company in the first year after purchase – keeping the seller’s “skin… Read more »
RIck has a lot of experience in this business. If he is seeing this trend you can bet it is for real. Keep up the good work Rick!