Is Now the Time To Sell 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 eject 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, so now you’re starting to see some profit and revenue growth.  With your numbers going in the right direction, 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.

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 to give 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 $3 million 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.

Sunbelt Business Brokers, Greater Bay Area | (408) 436-1900 | www.sunbeltbayarea.net

When and why should I pay for a broker’s opinion of value?

As a business broker, our first contact with business owners is often when they decide that they want to sell their business. Sometimes this is great, but sometimes it doesn’t allow the business owner to meet their expectations.

For business owners who are not familiar with business brokers, we are often seen - not as professionals who help them navigate a long and challenging road - but as a ‘salesperson’ just looking for the listing. This makes it difficult for some business owners to understand both the value of having an opinion of value, and in appreciating that the right time to get this (for the first time) may well be years before they need/want to sell.

At Sunbelt Business Brokers, we charge our clients to prepare a Most Probable Selling Price (MPSP) Report which is a broker’s opinion of value. Once a client reviews the MPSP they have a clear understanding of the range of value of their business as well as understanding the areas that contribute to the value of the company. This will also identify areas to change or improve to have your business ready to sell.

Imagine that you have owned your business for many years. It has provided you and your family with a lifestyle that you have enjoyed, but you are getting ready to retire. Remember, from the cash flow of the business buyers have to be able to support themselves, pay their debt servicing costs and expect to get a return on their invested capital. You, on the other hand, not only want to ‘get a great price’, but also to keep as much of it as possible. If taxes eat your selling price, then the great price wasn’t so great. In many cases you need to prepare yourself and your business for this transition.

• Your Sunbelt MPSP provides an opinion of value AND reviews your operations for elements that may need to be changed prior to sale;

• Your accountant, with their knowledge of your business (and a copy of the MPSP!) may assist you with tax planning and recommend deal structures;

• Your financial advisor may assist you with tax planning and disposition options;

• Your lawyer may assist you with deal structure, sale documentation, and sometimes help create tax-efficient entities.

Shifting your company from ‘operating to run’ to ‘operating to sell’ can take one or two, or more years to prepare for as you whip that business into a condition that can maximize both the selling price and your ability to retain those proceeds. Having a Most Probable Selling Price Report done - and in turn - updated as you move closer to your proposed exit time, can be a great tool to allow you and your advisors to prepare for this significant transition. Not allowing yourself the time or avoiding an ‘expense’ can both come back to haunt you. The snapshot that a Most Probable Selling Price Report provides can be one of the best investments you will ever make.

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Misconception for Small Businesses

So many people assume that when there is a recession that small business must shrink. Not only does the small business market offer continued growth during a recession, it also offers relative stability. Take a look at the growth rate of the small business market versus that of consumer spending.

Consumer spending sports impressive growth rates during the best of times but also suffers big swings during recessions. Conversely, the small business market offers a more stable source of revenue through good and bad economies. Year after year changes in the small business growth rate are less than a third of the drops seen in discretionary consumer spending.

Small business is not only an important source of diversification for enterprise companies but also a relatively safe haven for investments during recessions.

How does the Real Estate Crisis Affect Small Business?

Restoring confidence in the housing market is crucial to restoring economic growth.

It is estimated that 45 percent of outstanding small business loans are collateralized by some type of real estate asset. Many business owners often rely on the equity in their homes and widely use home equity loans and lines of credit.

The housing sector's weakness affects not only home builders, realtors, mortgage brokers, and others directly involved in home sales, but also related small businesses that provide services such as home improvements as well as home products.

Many small business owners in these industries will most likely not to see a turnaround in their own bottom lines until the real estate market rebounds.

The House Small Business Committee is studying a number of tax incentives that benefit small firms caught up in the housing crisis. Among the initiatives being discussed is a Super SBA Small Business Loan Program. It would provide "low-doc," expedited SBA 7(a) loans of up to $250,000, with reduced lender and borrower fees. The government would guarantee 85 percent of the loan. The idea is to expedite loans to small businesses to help them expand and create jobs.

Another measure proposed would grant immediate relief from the Alternative Minimum Tax (AMT) for the 2008 and 2009 tax years and would increase after-tax income for small business owners by sending rebates directly to taxpayers.

These measures are just being discussed and are not a sure thing.