There are various factors that business owners should consider when contemplating a sale, such as market conditions, the financial health of the business, and the motivations of potential buyers.
The ups and downs of the financial markets tell a different story each day with lows and recoveries that make it difficult to predict if a rebound or recession is on the horizon.
If you are a small-business owner who is on the cusp of selling your business, the past year has likely involved a lot of hand-wringing in terms of decision-making. Do you try to sell amid uncertainty or wait for calmer financial seas and rosier skies?
To the small-business owner, I offer this advice: Forget the bulls and the bears and focus on whether it is the right time to go to market for your company.
At times of market volatility, it is easy to lose sight of the most important considerations: What is happening to you and your company? The very best time to sell often comes at the time when you least likely want to do so—regardless of external events. Let’s assume that your company is performing well. You have new clients, existing clients are renewing contracts, margins are improving, your employees are satisfied, and you are enjoying owning and running your company. These are signs that it could be time to sell.
On the other hand, consider if you’ve lost some clients and you do not see new ones in the short term. A disruptor to your industry has entered the market. You’re exhausted, burned out and dream of doing something else. This may not be the time to sell. This may be the time to buckle down and fix your company.
Just as most home buyers prefer a house that’s ready to “move in” with a curb-side appeal, buyers of businesses typically do not want to inherit a mess. It’s OK if improvements need to be made—that’s ideal because it means there’s a way to optimize the value of the acquired business. But if your business is a melting ice cube, no one will want it.
Don’t get too distracted about things like interest rates, inflation, recession or proposed changes in tax laws when you’re considering the right time to sell your company. Be aware of what’s happening in the larger world, but your decision to sell should be based on your company’s current and projected performance.
In 2021, buyers were excited that there would be a flood of sellers seeking to sell their companies because capital gain tax rates were projected to increase. In truth, buyers were not able to get “discounts” on selling companies because the number of interested buyers far exceeded the number of quality sellers.
In 2022, some sellers hesitated to bring their companies to market because interest rates were increasing. However, rising interest rates had little-to-no impact on company valuations for transactions with a purchase price under $50 million because there was a historic level of both debt and equity capital available for buyers.
You can’t change your industry trends; in most instances, you will lose trying to overthink the markets. But you are the master of your company, and likely the knowledge of if it is performing well as compared to the rest of your industry.
I always like to remember that recessions can also be times of great opportunity. IBM, General Motors, General Electric, Hyatt, HP and even Disney launched during recessions and thrived.
Suppose your company is performing well and the next several years look promising. If you as an owner are interested in lifting off to your next stage in life, you may want to consider selling sooner than later—as unpredictable as the future may seem.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Sharon Heaton is the CEO of sbLiftOff, a lower middle-market M&A advisory firm that serves GovCon companies and founder-led businesses.
Follow her on LinkedIn.