Is Now the Time to Sell Your Business?
By Tim Dalton
There is a lot of great business activity in the CSRA, with several bigger businesses announcing plans for expansions and hiring more employees, while others are buying buildings and relocating or have locations under construction.
Many times what happens in big business trickles down to what I call small business, typically those companies with $250,000 to $15 million in annual revenues. Small business is the backbone of any local economy, and according to the Small Business & Entrepreneurship Council, companies with 20 or fewer employees make up 89.4 percent of businesses.
What happens in big business influences small business and the general health of the local economy. So if the stock market is hitting all-time highs, think big-business success, but then remember small businesses are performing well also.
When is the best time to sell a business? When it is at its peak performance.
Business valuations are based on the financial performance of the company. Assets such as inventory, furniture, fixtures and equipment have value, but it is really the profitability of a business that sets the value. You can have a store full of inventory and a strong balance sheet of assets, but at the end of the day, if those assets are not providing profitability for the business, the overall value of the company is going to be lower.
However, with a strong economy and business growth, profitability is up in small business, thus bringing higher values for businesses than in past years.
Some interesting information from BizBuySell.com, the internet’s largest business-for-sale marketplace, is that small-business transactions hit record high levels in the first half of 2017. BizBuySell.com gathers its statistics from participating business brokers across the nation that confidentially report their business sale transactions.
For the first half of 2017, small-business transactions totaled 4,902, as compared to 3,775 for the first half of 2016, which is an increase of 23 percent. Another interesting statistic is the first half of 2014 reported 3,755 business sales, which, when compared to the same time period in 2016, shows a negligible increase of 0.5 percent. So there is definitely an upward trend of activity in the sale of small businesses.
Also keep in mind that BizBuySell.com is only one aggregator of small-business sale transactions and that the actual number is generally recognized to be in the 200,000 to 300,000 range per year.
With all that said, is now the time to sell your business? I say yes – but it also depends. How is that for conviction?
Small-business owners need to have a motivating reason to sell their business. Whether it be retirement, illness, a desired relocation, or just plain burnout from spending many years in their existing business, there needs to be a reason. Unfortunately, cashing out to make a fortune is not one of the options in small business.
Business sellers are rewarded for their blood, sweat and tears for successfully running their business, but having an individual or another company come in and pay an inflated value for a business rarely happens. The reason for this is that small-business transactions typically have a portion of the sale financed by a lender or the seller. In both cases, neither party is going to overextend themselves by loaning too much money on the sale and jeopardizing their ability to repay the loan. That is what keeps values and the sales price in check in a small-business sale.
So if you are ready, now is a good time to consider selling your business. Generally, values are up, buyers are more active in the marketplace, and lenders are more willing to provide financing for deals that make sense.