Coming out of the Great Recession may have left your business bruised and battered. So is now a really a good time to be thinking about selling your business? Actually, it may be. There are a variety of major forces operating that could have significant effect on the valuation and sellability of your company.
One of the biggest and nastiest surprises for owners who sell, is the potential tax bite on the proceeds – especially when the sale is rushed and a decent exit plan strategy has not been put in place. It is likely – some say inevitable – that taxes will increase in the next few years, especially the long term capital gains.
There is a also a generational shift coming as hordes of boomer business owners make the decision to sell or retire. According to Inc Magazine, “Economists estimate that as many as 70% of privately held businesses will be put up for sale within the next 10 years, as more baby boomers retire. That mounting supply could put more downward pressure on valuations for years to come – a sobering message to entrepreneurs nervously waiting for the market to bounce back.” More competition and choice could mean lower valuations and lower sellability – especially if your company has weak financial management and poor operating results.
Buyers are more concerned about the age – and possible attitude of owners; whether you have the presence of a strong management structure with some form of long term incentive; deep understanding of sales mechanics and a wide mix of clients and some form of recurring revenue.
Increasing company regulation on acquisitions will only increase the amount and extent of financial reporting and due diligence required in the future, making it more difficult – if not impossible to sell companies with weak financial management.
On the more hopeful side, buyers have accumulated funds that can now be used for acquisitions, and they are actively looking for strategic additions. Buyers are especially interested in well managed, niche focused companies that will add complementary product and services.
The best advice is to operate your company as if you were planning to sell soon. Build margins, put management in place, monitor business value and find experts to help you build structure and a proper Exit Plan strategy.