When to Sell Your Business
You might be considering whether now would be a good time to sell your business. If you look at the very strong seller’s market in residential real estate, you can’t help but wonder if similar things are happening with business sales. There is certainly plenty of optimism among CEOs and CFOs. According to Dykema’s annual mergers and acquisitions (M&A) outlook survey from late last year, 71% of respondents expected the market to strengthen within the next 12 months, up from 33% in their 2019 survey.
Those who conducted the survey say that the sharp rise in optimism is reflective of the belief among dealmakers that the worst is behind us. Although there was still some short-term caution about potential shutdowns in some areas, those surveyed were generally very bullish about the medium and long-term outlook.
Since the survey last year, conditions seem to have significantly improved. With vaccines becoming widely available across the country, restrictions have been lifted in most states, and even the president has expressed cautious optimism that things will be back to post-pandemic normal by the 4th of July.
The strongest sectors for M&A activity in the current market include:
- Business Services (e.g., CPA firms, advertising, and marketing firms, etc.)
- Financial Services
- Educational Services
- Health Care
- Consumer Products
Is This the Right Time to Sell Your Business? In general, the conditions are ideal right now for a successful business sale. The economy is moving in the right direction, and there are a lot of prospective buyers out there in most markets. But even though the general market conditions are good, it is still important to examine your specific situation to determine if now is the right time to sell.
Here are some of the primary factors to look at in deciding whether to put your business on the market:
Personal Circumstances: Where you are at personally is always among the most important considerations when you are thinking about selling your business. Here are some questions to ask yourself:
- Are you still passionate about your business, or has it become a burden to you?
- Are there other life circumstances that demand a lot of your time lately, such as caring for an aging loved one?
- How close are you to retirement?
- How is your health?
- Are you still physically able to put in the time and effort it takes to maintain the success of your business?
- How involved do you want to be in your business in the future?
- Are you ready to let your business go after all that you have put into it over the years?
The answers to these and similar questions will help you decide if you are personally ready to sell your business.
Your Financial Needs: Your financial situation is another major consideration that always needs to be looked at to determine the timing of a business sale. This has a lot to do with not only your financial position right now, but also how much money you will want for retirement or whatever is next. Other circumstances that might affect your finances include a divorce, financing your child’s college education, or putting a parent into a retirement home.
The Condition/Value of Your Business: Where is your business at this point? How did it fare during the Covid-19 shutdown, and how is it doing today? If your business is on an upward trajectory, you can of course expect a better valuation than if it is trending downward. But Covid-19 has complicated this equation, and if your sales temporarily dropped during the height of the outbreak, this could affect the buyer’s perception of the value of your business.
In examining the condition of your business, one of the best things to do is to speak with an experienced business broker. Business brokers have their fingers on the pulse of the local marketplace, and they know how to properly structure a deal even taking into consideration the effects of the pandemic.
A business broker will provide a good outside perspective on the shape of your business, and they will be able to tell you what needs to be done to achieve optimal value from a potential sale. They will also work closely with you to navigate the complexities of the process and bring your transaction to a successful conclusion.