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Business Owners: It’s A Seller’s Market!
BY: Jordon Geiger
With the stock market near record highs, interest rates near all time lows and trillions of dollars in available capital, 2018 might very well be an ideal time to sell your business.
The stars have seemed to align for small business transactions. According to the largest internet-based business transaction marketplace, BizBuySell, annual small business transactions ascended to record highs in 2017 and the pipeline in 2018 is set to surpass last year’s numbers.
When asked for the top reason for the increase in transaction activity, over 5,000 brokers surveyed answered with the following:
- Strengthening revenue and profit numbers (28 percent)
- Increasing number of owners looking to sell (21 percent)
- Increasing number of qualified buyers on the market (19 percent)
If 2018 finds you taking advantage of the current market conditions and contemplating the sale of your business, here are some key questions you should ask yourself before taking your legacy to market:
- Is your business ready to sell? You can’t start putting things together the month before you sell. To fetch the best price for your business, make sure you can produce two to three years of tax returns that are accurate and show maximum profitability.
- How is a buyer going to value my business? According to Capital Valuation, buyers are motivated differently and perceive risk differently. For example, an undiversified passive investor may have much lower enterprise value than a strategically positioned business. Know what buyers are out there and position your business to those whom present higher enterprise value.
- Who should be on my team when I sell? This is paramount. It’s important for entrepreneurs to understand whose services will bring them through the sales process and help them get the best price for their business. In Dane County, we are very fortunate to have some of these very well esteemed professionals. Look around to find partners that fit best with your desired outcome.
- Can my business thrive without me? If a buyer is concerned that a business is too dependent on the owner or a single customer, that may be reflected in the offer price. Be aware of the risks for a potential buyer.
- Would I be willing to stay on if the buyer wants me to? This inherently reduces the risk for the potential buyer, but if it seals the deal, is it worth it to you to stay on and work for the purchaser for a specified term of say, six months or a year?
Although there are many more considerations for you to make, these questions should at least provide some guidance whether 2018 would be the right year for you to list your business. There are a lot of potential buyers and the market conditions seem to be ripe, but that means nothing if you aren’t ready.