In the entrepreneurial ecosystem, business owners
looking for an exit strategy are likely to find 2014 an optimal year for
selling.- Peter Lehrman, Entrepreneur Magazine
Timing
any market is always a tricky proposition, especially in this era of
diminishing returns and lowered expectations. The market for selling a
small to mid-sized business is no exception.
Anyone considering
selling a business, especially boomer business owners thinking about
retirement, should have a list of compelling reasons why they want to
sell and a plan to help them do so.
For most business owners, the
timing will never be perfect, so waiting until the ideal moment to sell
could be an impractical course of action. However, certain indicators
are pointing to a better than average success rate for selling a
business in 2014.
That's why it's a good idea to employ strategies right now that will help you get the maximum money for your business.
2014: The "Year of The Seller?"
Three
or four years of turmoil in a struggling economy makes some business
owners understandably cautious when it comes to optimistic projections
for 2014. However, there are some very good indicators pointing to the
possibility of a perfect selling environment for at least the next 18
months or so.
For example:
• The majority of businesses have experienced increased profitability for the past 2-3 years.
For
numerous business owners, 2008-2010 were flat as far as profits were
concerned. Those who survived this period felt lucky to break even, much
less put profits on the books. With demand down across the country for
services and solutions, business owners were unhappily treading water.
However,
the recession is slowly retreating, allowing businesses to recover.
Many are now in a position to show the three or four years of solid
growth that qualified buyers want to see when they build projection
models.
The ability for a company to demonstrate upward trends in
their financials shows prospective buyers that it is right to make
positive projections for future growth. This in turn gives owners better
valuations and does wonders to make the deal viable. Buyers want to
know that a business they purchase is poised to survive even a serious
economic downturn.
• Low interest rates (for a little while longer, anyway)
You
don't have to have an advanced degree in economics to understand that
the artificially maintained low interest rates we now experience will
soon be a thing of the past. Forecasters have been fretting that the
Federal Reserve will be forced to curtail its' bond-buying program soon.
A
growing number of experts now say that 2014 could be the year when that
finally occurs. This means, naturally, that waiting too long to sell
might mean an owner will see higher interest rates and a lower price for
his or her business.
The reason for this is that interest rates
always have a direct impact on the price of capital used to purchase a
company. Buyers who rely on loans to acquire a business will feel the
sting of these rising rates since earnings are used to pay the interest
on loans. An increase in the price of capital will almost certainly lead
to lower valuations for businesses.
It makes sense that the more
expensive it is for buyers to get capital, the less willing they are to
pay top price for a business. As soon as rates begin to rise in 2014,
there will be a negative impact on business valuations.
• Low levels of debt and lots of positive cash flow
Credit
Suisse reported in February, 2014 that 73 percent of U.S. companies and
56 percent of European companies have incredibly low levels of debt on
their balance sheets compared to their total market capitalization.
Private equity companies are awash in cash, with nearly $1.1 TRILLION
in cash on hand. At the same time, levels of corporate debt are falling
to new lows. So, what does this mean for you as a business owner who is
seriously considering selling?
Well, for one thing, since all
this cash needs to go someplace other than under the CEO's mattress,
private buying groups will be out en masse looking for successful
businesses they can buy and from which they can see immediate cash flow.
For another thing, there is a natural mood elevation that goes on when so many dollars are in play.The old saying "a rising tide lifts all boats"
is applicable here. Every billion dollar mega-deal that goes down makes
every smaller business deal more attractive. Small businesses are sure
to benefit from the optimism that comes with any boom.
• Changing demographics are pushing boomers to sell.
The
first half of the "Baby Boomer bubble" (2005-2010) has passed. During
that period, older Boomers were able to sell to younger boomers,
although the success rate was still a mere 3%.
However recent
research indicates that the number of boomer owners indicating they
wanted to retire increased from 50,000 in 2001 to over 750,000 in 2009.
It is possible we could see over one million businesses go on the market in the next 10-15 years in a transition tsunami.
If this holds true, then it makes sense to sell ahead of the herd and
reap the benefits of the current buying frenzy fueled by low debt levels
and loads of cash.
Even if you think you aren't ready to leave your business yet, you should plan as if you are. Positioning your business to sell is never a bad idea or waste of time.
By
crafting a well-thought-out exit plan, you will be prepared if
circumstances (either good or bad) push you to sell, or if you get an
offer from a qualified buyer that you just can't afford to pass up.
You
never know, maybe 2014 will be the year you make a profitable
transition from your business and start enjoying everything for which
you've worked so hard.
Why 2014 May Be The Perfect Year To Sell Your Business
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