February 14 , 2018

Selling Your Business?

With the economic outlook looking positive, many business owners will consider selling their business. There are really five specific reasons that would make selling sooner rather than later attractive.

When you are considering selling a business, there are factors to consider. These include:

  • Financial condition of the company
  • Growth cycles
  • Profit history
  • Current market conditions
  • Last but not least.....your business valuation!

When you have sales and earnings that are strong and trending upward and you have a history of good financial performance, it’s a good time to consider selling. In considering an offer price buyers will project future earnings. They will place more confidence in projections and less risk on those projections - thus higher valuation - when your business’ performance is strong and less volatile over time.

Like many economic variables, business value can fluctuate over time. So good timing can make a big difference in the price paid by buyers for business acquisitions. In our valuation reports we evaluate the following macro-economic factors in determining business value:

  • The economy
  • Industry trends
  • Stock market volatility
  • Competition
  • Investor confidence
  • Interest rates

These external conditions affect the risk on future cash flows (higher risk, lower value) and level of those cash flows. Internal conditions within a company also change because of these external factors but also internal factors such as management changes and strategies.

When should you sell?

In answering this question, getting some sound advice is almost always a good place to start. You’ll want to know answers to the following questions:

  1. What is my businesses’ current valuation? You have to know this to know whether a sale would meet your financial and estate planning objectives.
  2. What is the market like? Booming markets will have a lot of places to relocate or expand a business. Population growth is a good benchmark but others should be considered as well as they relate to your industry.
  3. Are investors looking? Buyers are typically looking for stability, enhanced predictability, and control (if they can get it). Business acquisitions offer potential all of these and can also offer a better return than traditional investments. Future economic expectations and long-term outlook are very important considerations as well.
  4. Changes to business taxes. Business owners considering a sale should sell by Dec. 31, 2018, should look at new tax provisions in 2018 including capital gains to understand impact on value and how much of your proceeds you would be able to keep.
  5. Number of buyers. When the number of buyers exceeds the number of sellers, it makes for a robust small-business exit market. This can change and should be evaluated often. Typical investors fall into many categories.
  • Corporate retirees or management-level layoffs – w/ severance pay or pension funds to invest or looking to go into business for themselves.
  • Foreign buyers – when dollar is valued lower against their own currency
  • Thirty-somethings with entrepreneur mindset disillusioned with expectations corporate life.
  • Strategic buyers – look for acquisitions to enhance (external) growth, establish complimentary products/services, and increase efficiencies (distribution, back office, etc.).
  • Investment buyers, such as private equity groups, looking to add to their investment portfolios.

All of these considerations can be put into a proper framework or estate plan that’s starts with a business valuation compete with a report that outlines many of these considerations and their impact on your businesses' value. Quick (“back of the napkin”) valuations almost always give misleading results. Call Brad direct to discuss your situation further 770-380-2406.