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BUYING A SMALL BUSINESS

Business for Sale: Not a Sure Thing

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Conventional wisdom holds that only one-quarter to one-third of small companies on the market areever sold. At first glance, it's hard to fathom why the rest--many of them healthy businesses--cannotfind buyers, or if they do manage to sell, why they command such relatively low prices. The explanationlies in some powerful marketplace realities.

The biggest problem, perhaps, comes from the inefficiency and fragmentation of the small-businessmerger-and-acquisition market. Although the Internet may help change that, traditionally it's beendifficult for would-be buyers and sellers to find each other, unless they happen to hook up with thesame regional business-brokerage firm or patronize the same classified-advertising venue. Anotherproblem is that small private companies often thrive in lucrative but tiny market niches, exactly thekind that are easy for potential buyers to overlook.

Finally, one key business formula that measures cash flow often works against the small-businessseller (unless he or she is selling a lifestyle business, in which other factors can help outweighfinancial matters for potential buyers). Although most buyers look for a company with good growthprospects, they will price deals based upon prior financial performance and pay special attention to theprevious year's cash flow.

Last updated: Jul 1, 1999




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