59A Stewart Avenue
Hamilton South, NSW 2303
Australia
Phone: +61 2 4962 3388
Fax: +61 2 4969 5682
ABN: 63 002 457 561
Licence No. 310 520
Finance and it's Effects on the Sale of Small
Business.
We are often asked what is the effect, if any, interest
rates have on the sale of small businesses in the
marketplace.
Low interest rates have proven to have a significant
effect, but not for the reasons most people think. You
would be forgiven for thinking that if interest rates
are low the cost of finance is more affordable and
purchasers can
borrow more money to buy a business.
Well, that's true to some degree. Demand is
strengthened as a result of low interest rates, but the
most significant impact on the marketplace is that it
slows down the market because it retards supply and
availability of good businesses. How is this so? Well it
all gets back to vendors contemplating the sale of their
business. Vendors are primarily concerned about 2
things.
The amount of money their business is likely to
sell for.
What they can do with the money to generate an
income.
Being the owner of a small business can be very
rewarding. It would be reasonable to assume that most
businesses will show a return of between 20% - 40% on
investment as well as provide the owner with a salary if
employed within the business.
It is almost impossible for vendors to generate
returns in excess of 20% on their money once they sell
their business. For this reason vendors tend to hang on to their
business when interest rates are low. There is, of
course, a time when they can no longer hold on to their
business despite their best wishes.
