Over the past decade there has been much speculation over when a wave of baby boomers would sell their businesses. Study after study predicted a mass transition that never came. As a result, there has been a shortage of supply that has pushed up prices for good businesses. Why are business owners staying on well into their retirement years?
Part 2: Sustainability and Alignment
Last time, we explored the importance of capacity and how lenders measure this. In addition to a company’s capacity to repay its debts, capital providers also measure leverage. Leverage ratios express a company’s total liabilities relative to either its assets or its equity base. Such ratios are important for two reasons.
Part 1: Capacity (A Two-Part Series)
Financial covenants (or ratios) are to lenders what blood pressure, cholesterol and BMI are to doctors; they are measures of overall corporate health. Many entrepreneurs don’t understand why these covenants matter, or what their lender is trying to accomplish by testing them. More importantly, they don’t invest the time to understand and negotiate a covenant structure that accurately measures what matters to their business.