Over the past several months, I’ve spoken to a number of professionals involved in business sales: brokers, valuators, CAs and CPAs. I’ve also spoken to a number of wealthy business owners and a few “serial entrepreneurs” – people who have built and sold a number of businesses over their careers. Based on these conversations, and my own observations of certain macroeconomic issues and trends, I believe now might be a very good time for owners to sell.
With that in mind, I offer the following scenarios in which an owner might want to think about selling. Take them not as advice, but rather as a starting point for your own consideration of the question.
You don’t want to “fight” again
I’ve spoken to a number of business owners who had to fight tooth and nail during the Great Recession. Through a combination of business smarts, hard work and sheer willpower, they’ve survived. They’re proud of their efforts, but they’re tired. They don’t relish the thought of going through another downturn. I think that’s a pretty good sign that it’s time for a graceful exit.
You were ready before
Last month, I spoke to the owner of a specialty manufacturing business that serves the oil and gas industry. He told me he was mentally ready to retire several years ago, but then the Great Recession hit, and he put his plans on hold. Now that things have turned around and his company has returned to growth, he’s thinking about retirement again. If that scenario sounds familiar to you, it might be a good idea to follow his lead.
You’re wary of taxes
Massive federal deficits are an ominous sign for high-income earners and wealthy business owners. Governments will have to pay for all the stimulus they’ve been spending, and there’s a good chance they’ll be looking to high net-worth individuals and owners to do it. (Example: President Barack Obama’s recent plans to increase taxes on the wealthy.) Depending on your situation, selling now before it happens here might make sense.
You’ve made the best of bad times
Do you operate a “countercyclical” business – a business that does better in a rough economy? If so, you’ve probably had some of the best years of your business career. But bad times don’t last forever. It might make sense to sell at a high now rather than wait for the cycle to swing up.
You want to beat the rush
You’ve heard about the baby boomers. They’ve started to retire in a big way. Some of them are business owners, which should mean that there will be a lot more businesses out there with “for sale” signs hanging on them.
Simple supply and demand suggests that this will be good for buyers, not sellers.
You own a business that private equity might be interested in
The Great Recession was hard on private equity firms. Many turned in fine performance, but when it came to raising new money, times were tough. Many firms have a “five-year window”: they have five years to invest money, otherwise they have to return it to investors.
If you operate a mid-sized business (i.e., over $1 million EBITDA) in an area that private equity is interested in (high tech, real estate, etc.), selling now could help you capitalize on the pent-up appetite for deals.
As an aside, even if you aren’t interested in selling now, you might be interested in knowing how sellable your business is. Our “Sellability Score” survey can generate a confidential, complementary report on how attractive your business is to a potential buyer and give you some suggestions on how you can improve your metrics: http://sellabilityscore.com/rgmp/stenner-investment-partners. •
