Is Now the Time For Selling Your Business?

Have you been thinking about selling your business but just can’t decide if now is the best time?  Do you find yourself repeatedly analyzing the economic situation and wishing you had a crystal ball? There are positive signs and there are negative signs…

If you’re still up in the air and can’t quite decide whether or not to hit the exit plan button, here are six reasons you might want to consider getting out now.

1.You’re less interested in fighting the good fight

A lot of business owners took the Great Recession in the teeth. If you’ve got your business stabilized and the prospect of possibly having to fight through another recession leaves you panic-stricken, it could be time for you to get out.

2. The worst is behind you 

Let’s say you were mentally ready to consider selling a few years ago and then 2008 hit and 2009 was bad, and in 2010 and 2011 you made cuts and adjustments, sonow you’re starting to see some profit and revenue growth.  With your numbers going in the right direction for selling your business, so now might be just the right time to make your move.

3. The tax man is coming

Governments around the world are looking for money to fund the cost of an aging population. At some point this will mean increased taxes for business owners.

4. Nobody is lucky forever
If you’re lucky enough to be in a business that actually benefits from a bad economy, congratulations... you’ve probably just had the four best years of your business life. But no cycle lasts forever and right now might be a great time to take some chips off the table.

5. The coming glut

As a business owner, demographics are not on your side. As the baby boomers start to retire in droves, we’re going to have a glut of small businesses coming on the market. That’s great if you’re buying; but if you’re a seller, you may want to avoid the flood and head for higher ground now.

6. The closing window

Since 2008, it’s been tougher for private equity companies to raise money; so many firms had their last successful round of fundraising a number of years ago.Many of these funds have a five-year window in which to invest or they have togive the money back to the people who gave it to them. Some boutique private equity firms will make investments in companies that have at least one million dollars in pre-tax profits (larger private equity firms will not go below $3million in EBITDA); so if you’re in the seven-figure club, you could get a bidding war going for your business among private equity buyers keen to invest their money before they have to give it back.

We think of small business buyers as young aggressive types out to make their fortune. This study of US Census data shows a different story. The data is a comparison of the change in the number of business owners by age from the year 2000 to 2010. 

We had thought that at this point baby boomers would be selling their assets to liquidate for retirement. The net result would be a buyer's market as an over-supply would drive down prices. If this was happening we would see the data showing fewer older small business owners and more younger ones. Just the opposite has happened.

Many baby boomers today are both financially unable to retire and rapidly becoming unemployable. They are people with some retirement funds and many business skills; but with a serious problem. They are seeing buying a business as the solution. Since the start-up failure rate is so high, that is rarely seen as desirable. Buying an existing independent business with an established history or buying a franchise with an established success rate are both viable options.

What the census data in the graph is telling us is the baby boomers are in the market selling their businesses or franchises to other baby boomers. Baby Boomers are the current market's primary business buyers. New tools are now available for both the business buyer and the business seller we are seeing.

Many business sellers are not aware of the dynamics of how their business might be valued. We have seen where an understanding of the value drivers involved can more than double the business value annually. When this is representing the core of your retirement funding, what else could be more important? This is the case for Exit Planning.

Business buyers must understand both the seller's business model and their own Personal Business Model. A business doing well in the seller's hands doesn't mean it will do well in the Buyer's hands. The new book, Business Model YOU, takes any individual through the process of developing and understanding their own Personal Business Model.

Lastly, both sides of a business sale are complex and there is little room for an aging baby boomer to make mistakes. Getting the assistance  of a skilled business broker will be one of the best strategies possible. Our brokerage is centered around the Executive Advocate philosophy described on this website. Contact us to learn more how we can help.

Many business owners believe that selling your business is similar to passing the baton in a 400 meter relay: once you’re finished running, you get to relax.  In reality, buyers will insist that you stay on for a transition period – anywhere from six months to five years – during which time you continue to work in your business to help the buyer capitalize on the investment they’re making.

THE Question

When in the process of trying to sell your business, a prospective buyer will ask you – often times casually –  “Why do you want to sell your business?” These eight seemingly innocuous words have derailed more deals than any others.

Buyers ask THE question to evaluate how likely and willing you are to stay on or if you already have one foot out the door.

Obviously you don’t want to lie, but there is a right and wrong way to answer THE Question. Answers like “I want to slow down a bit” or “I want to travel” or “we’ve got a baby on the way and I want to spend more time at home” communicate to a potential buyer that you plan on winding down when they take over. However,what they want to hear is your intention to help them realize the potential locked inside your business.

 Here are some suggested responses based on your age.

• If you’re under 40, you clearly aren’t ready to “retire” so you need to communicate that you see an upside to sell you business and merge with theirs:       “In order for us to get to the next level, we need to find a partner with more <insert sales people,distribution, geographic reach, capital or whatever the partner brings to the table>.”
• If you’re between40-55 years old,most people will understand the need to shore up your personal balance sheet:       “I’ve reached a time in my life where I want to create some liquidity fromthe value I’ve created so far, and at the same time I want to find a partnerwho can help us get to the next level.”
•  If you’re over 55, you can start to talk aboutretirement, but you want to make sure you communicate that you still have lotsof energy and passion for your business:       “I’m at a stage where I need to start thinking about retirement. It’s along way off yet, but I want to be proactive.”

Rehearse your answer to THE Question so it becomes a natural response when you are inevitably askedTHE Question by a potential acquirer.