Sit-Down Interview With Business Broker Neal Isaacs

What are your thoughts on where business acquisition & sale market activity is heading over the next 3-6 months?

In the Main Street and Lower M&A market, a cautious rebound is beginning.  After the pandemic hit "pause" on most deals for a few weeks, a definite rebound started when local governments began to lift lockdown restrictions.  Business owners are ready to get back to business, and consumer demand is pent up; and not just for products and services, but for business deals as well. 

I think the transaction market will continue to build as people accept that this is the "New Norm" and transaction activity will return to pre-pandemic levels within a year.

What do you see as the most significant SELF-IMPOSED threats out there that could hurt the market for business acquisition & sale and small business activity in general?

Owners who fail to pivot will be the ones left behind.  The faster owners adapt to change, the quicker they will be better positioned for the future and have more options for exit.  SBA loan officers and underwriters are judging not revenue numbers, but the actions firms are taking to function in the COVID era. 

Those janitorial companies who add sterilization services, those real estate firms who add virtual walk-through, those restaurants who add curbside and delivery options will be the ones to win.  Those who stick with business as usual will be left behind when the acquiring parties make their choices.

What do you see as the top three things the government needs to do to support main street business acquisition and sale opportunities for small business owners through the remainder of this year?

1.  Don't allow SBA(7) A funding to be used up by PPP loan allocations.

2. Enable business owners the freedom to open their businesses if they can do it safely.

3. Don't create scenarios where employees make more money on unemployment than going back to work.

What do you see as the top three reasons to BUY a business in 2020?

1. SBA Loan Forgiveness for 6 months on new loans until September.

2. Essential businesses are more valuable than ever.

3. Business owners needed to sell before COVID-19 and that demand persists under new demand from distressed business owners; the result is a buyer's market.

What are some of the questions a business owner should ask when choosing an advisor to help buy a business or work on exit planning to help navigate through this challenging stretch?

Business owners should ask advisors if they have experience selling businesses like theirs.  They should ask if the size of their business "fits" into the portfolio of other businesses the broker has for sale.  They should ask advisors about what ethical obligations they have when serving them; who they represent and how they are compensated.  They should ask if they would work with other brokers to extend the pool of buyers, and where their buyers come from.  They should ask them what steps they are taking to keep their own practice operating through the pandemic so that they are available to complete the sale with the owner.  Finally, a business owner should never be afraid to ask to speak with an advisor's previous clients; owners who have exited a business successfully love to share their experiences with other owners.

What are your thoughts on transaction terms for buyers & sellers in the current market?

As we are living through unprecedented times, it's important to remember that there is no "COVID Valuation Formula."  Although there are three market approaches and several complex valuation methods from the excess earnings method to the guideline market transaction method, ultimately a business will sell for what the buyer is willing to pay for it. 

The beauty of entrepreneurship is that it's the owner's decision whether he or she is comfortable with the price and terms the market bears; if they don't like the market's response they have the power to improve the business and come back later for more favorable options. 

There is no doubt that selling during a pandemic raises the risk for the buyer and offers that spread that risk into the future through financing options will be better received by the market.

Thoughts on business valuations in today's market?

The trailing-twelve-month Income Statement will be the key performing index as we move past the pandemic.  As buyers will value based on historical earnings methods, sellers will lean more into the discounted future earnings method which takes into account fluctuating historical earnings to project what the future earnings will be.