Business Sales in 2022: Still All About the Fundamentals

I’ve said this before, and I’m sure I’ll say it again, but whenever the turmoil of the world takes center stage, it’s useful to repeat the same message: No matter what’s happening in the world, the buying and selling of businesses is still all about the fundamentals. If the opportunity is right, or the motivation is strong enough, a deal will get done.

With that in mind, let’s take a look at today’s hot-button issues and how they are affecting (or not affecting) the buying and selling of privately-owned businesses.

1. Rising Interest Rates:  Yes, interest rates are going up, and yes, that means that over the life of a loan, it will cost business buyers more to finance their acquisition.  But that won’t really slow the market, and here’s why. When a deal comes together, the financing has to “work”, regardless of the rate.  This means that the buyer can pay the monthly debt service and generate their required income based on the business’s performance.  When there are plenty of active buyers, financing is available, and strong businesses are on the market, deals will get done.  And for those smaller businesses or weaker buyers (situations that could be impacted by rising rates) seller financing is always a fallback solution, where terms and rates are fully negotiable.
2. Inflation: This is another issue where the fundamentals of deal making don’t change. A business owner just needs to react.  Sales price is a function of the business’s profitability.  Inflation can impact a business’s costs, which can affect its bottom-line profitability.  Whether inflation is present or not, any business owner considering the sale of his or her business must have a strong grasp of their bottom line, and firm control of expenses in order to maximize value.  This never changes.
3. Supply Chain/Logistics issues: This one is real.  The difficulties in transporting goods and materials are having real impacts on businesses.  But as with inflation, that impact can be boiled down to a decrease in bottom-line profitability, and therefore sale price.  If a business owner is serious about selling, this is an issue that must be addressed, or a serious drop in value will be felt.  Lower profits mean lower prices, but furthermore, who wants to buy a business that can’t get their materials or inventory?

While there will always be hot-button issues, when it comes to the buying and selling of businesses, the most important thing to remember is that a seller’s motivation to sell and a buyer’s motivation to buy will always wins out.  Sellers will continue to experience burnout, have health and family issues, and be looking to retire.  Buyers will always be looking for new opportunities, ways to grow their income and investments, and to control their futures.  Whenever these very real and very human forces are at play, the desires to get deals done will always overcome whatever bumps in the road may occur.