At lunch with a financial advisor recently, we discussed economic conditions and how they were impacting our clients. She observed their research indicated many Baby Boomer aged clients were still not investing in the stock market after a rough ride in 2008. Her view was that many had decided to invest in alternative investments notably real estate and their businesses.
The DOW Jones Industrial Index has risen over the 20,000 mark, and many business people are thinking more optimistically about the business landscape via proposed initiatives of the new regime in Washington. Recently, I had conversations with retirement ready business owners who were considering delaying an exit from their business in order to take advantage of the rising tide in the economy. Their rationale was, “Why not stay in the business a bit longer and make some more money before selling?”
If you are a business owner thinking about selling your business, you may be considering, “Is now the right time?”
I offer the following:
There is never a better time to sell than when your business is on an upswing. It will typically then command a higher valuation and better purchase terms. Several years ago we valued a company, and the owners, who were riding high, decided to hold off selling. Since then, their industry has changed and the business has trended down. The business is now worth about 60% of what it was worth in the initial valuation.
During good economic times, liquidity in equity and debt are more readily available to buyers and the number of buyers is more numerous than when economic times are trending downward.
Make the decision to sell while you are able. Last year I had a business owner defer making the decision to sell. The owner has recently become ill and is seriously contemplating selling now. As his or her health deteriorates, an owner may lack the time and stamina to execute a sale, and they may be forced by circumstances to sell quickly on unfavorable terms. The sad reality is that a high percentage of business transitions today happen on an involuntary basis, most of them due to the 4 D’s: death, disability, divorce, and disagreements among owners.
Today’s low interest rate environment makes this an attractive time to buy or sell a business. The Prime interest rate is now at 4.00% and even with expected Fed rate increases, interest rates have been and will remain near historically low levels. In the interest of deploying loan assets, banks and other lenders are offering attractive prices and terms. In today’s market, fixed rate financing is available and maturities of ten years or more are available for business acquisitions.
If you have made the decision to sell and you are prepared to begin the process, you should start today, as there is rarely a perfect window to sell. You will never have better information about where market and economic conditions are heading than you do today.
Even if your sale time frame is years away, positioning your business to be the most attractive to a buyer will certainly pay dividends at sale. Obtaining a valuation and putting together a team of qualified advisors to assist you are good places to start the process. Knowing where you stand today will enable you to plan and prepare for that day when you maximize your business’s value through a sale.