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Time to Buy/Start a Business?

March 21, 2012

This is a bit of a follow-up to a prior post, which discussed whether it is a good time to buy or start a business, given the current recessionary state of the economy.  The economy is definitely not a situation that remains set in stone; current events suggest that things are moving aggressively and quickly, in the areas in which we principally operate.

That last phrase can be key.  Geographic issues are always to be considered, in terms of economic cycles.  While the American financial scene will follow similar trends across the Country, and theUSitself will be impacted by World-wide economic cycles, the highs and lows of the cycles, the speed of any decline and recovery can be affected by the region in which you live and work.

Take for example theDetroitarea.  It was highly affected by the Auto Industry, and that Industry crashed early and more deeply than most other areas of the Country.  While the media now reports that Ford and GM have made substantial gains – as we write this in March 2012 – Chrysler has not been as fortunate.  And the recovery of Ford and GM are in part a result of their efforts to scale back, in combination with reduced salary/benefit packages negotiated with the Auto Workers, as well as elaborate pricing and financing to prospective Auto Buyers.

What this means is that their recoveries have had a cost to the overall marketplace for other goods and services, inDetroit.  There is a recovery going on, but it is tempered by the area’s lowered income levels and continued high unemployment, which will have implications for you, if you are looking to buy or start a business in that City.

Compare that to theMarylandarea, where we experienced serious difficulties in economic losses, as well.  But nowhere near as deep as those in areas that were more dependent upon heavy manufacturing or tourism, such asFlorida.

InMaryland, manufacturing had left the area over the years, going more toward southern states of theUS, for those manufacturers that have remained in the Country, at all.  Clothing manufacturers and the steel industry have made the move to Asia, in many cases, where they can enjoy the cheapest of labor and other reduced business expenses (like a lack of concern for employee safety or the environment, and the investment required to protect those expendable items…) that cannot possibly be replicated here.

What has replaced them, in theMarylandmarket are increases in various aspects of the Medical and High Tech Industries, and more importantly, a fairly radical increase in Government expenditures and the employment that accompanies such growth.  A large portion of the increase in High Tech businesses is also a result of Government spending.

Therefore, though property values dropped inMaryland, many areas were not as radically impacted as areas likeDetroitandMiami.  And the resurgence in prices has begun inMaryland, particularly in those sections that are close to Washington (DC) or some of the military bases that are actually in growth modes.

So, what does that mean?  Does it mean that the recession – at least inMaryland– is over?  Well, we are not economists, and anything can still happen, particularly with the scare and speculation over oil, given threats in Iran and instability in Syria; unemployment is still up and consumer confidence is rocky, both of which can affect the markets; the US election makes for incredible instability…and that is not an editorial comment about the candidates; and the continuing soap opera with the European economy can have a radical impact on our own recovery, here.

But we are seeing much more in the way of expressions of pent up demand, on the part of Buyers, within the past three (3) months.  Far more Buyers are in the market, with buying power and a willingness to move ahead.  Maybe that is a sign of their confidence in the recovery.  Maybe it is a sign that they are resigned to the current market, have gotten used to the fact that this level of market activity is the “new normal”, and they figure they need to make the best of the situation, no matter what it currently may be.

There are also expressions of pent up demand by the way of Seller activity.  They are seeing their businesses either stabilize or even increase, and feel more confident in the potential of selling at a fair price, than they have in several years.

Money is available for loans.  The SBA is seeing the stability and growth of businesses that are being processed through that organization, and increasing numbers of loans appear to be approved.

Consumer spending is reportedly to be opening up – in part, as demonstrated by the example cited earlier with GM and Ford.  Not all businesses are doing well, but many have reported increases to varying degrees, which bodes well for the economy in general, if the trend continues.

What this means, from our perspective, is that Prices for the purchases of businesses are increasing.  Demand, in most purchases, influences prices in an upward mode.  So, the more demand, the more the Sellers can command.  Not necessarily by anything the Seller might do, either.  When we advertised a specific opportunity, perhaps a year ago, getting Buyers was a slow and laborious experience.  Today, advertising that same opportunity might provide us with multiple Buyers, multiple offers and sometimes, one Buyer trying to outbid another!

Know your market!  This may be the bottom of the economic cycle.  It may be time to look at what is going on in the business area you have been considering, to determine whether this is YOUR time.  If you are starting from scratch, what is the current demand for your proposed product or service?  What is the competition doing?  How are they performing?

If you are buying a business, what has been that company’s historical trend?  Look on a month-to-month basis, not just annually.  The time for paying at deep discounts appears to be over, for many businesses.  Now may be your best opportunity to get any semblance of a “deal”, before prices start to potentially skyrocket.

We are not telling you to start or buy a business, right now!  We are telling you to look at the market carefully, and make that decision in an informed manner; make intelligent decisions based on timely facts, not generalized opinions from the media, which frequently reports on business trends that are months old.

(Receive in-depth, personal consulting online, with The BAF Group’s principal at https://clarity.fm/donaldbarrick .

The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Thank you for your interest.)

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