If your business is salable and you’ve been considering making an exit, now is a great time to take the possibility of selling the business a little more seriously. Without going too far into economics—and steering completely clear of politics—here’s why many business owners are finding themselves in an ideal position to sell at a desirable price.
Buyers Have Access to Cash
Private equity groups and other strategic buyers have been calling us constantly in search of acquisition targets. They’re flush with cash and ready to move on opportunities. They still need a solid return, of course, so they’re looking for businesses that they can grow and scale. Because many businesses are not salable, the ones that are can potentially create bidding wars between competing groups.
Individual buyers and smaller entities seeking funding through the Small Business Administration (SBA) are in great shape, too, because…
Lenders Are Loosening Up
During and after the last recession, the SBA tightened the screws with their lending. With the economy now thriving, they’re starting to be more relaxed. SBA loans are great for individual buyers and small entities because the SBA guarantees the loan, reducing the risk for banks and thus promoting lending for buyers who might not otherwise have viable financing.
Meanwhile, strategic buyers in a strong economy have better access to commercial loans, allowing them to borrow against business assets rather than personal assets. This is all while interest rates remain relatively low, relieving the pressure on businesses to perform in order to assure buyers that they will recoup their investments.
Boomers Exiting Soon
There’s a quiet X factor that could soon tilt the scale away from sellers. Baby Boomers held onto their businesses through the recession because they didn’t want to sell low. As they begin to move past retirement age, it’s only a matter of time before these owners reach a point where it’s time to move on. Some will transition to family members, business partners or a new generation, but many will look to sell.
The sense among our industry peers is that we’re already starting to see this new pool of sellers arise, and it will only grow in the coming years. If you’re an owner, consider classic supply and demand. With more businesses on the market, you might not be able to command the same sale price as you would now, when the supply of salable businesses is lower.
The Next Downturn: Out of Sight, Out of Mind
The economy runs in cycles, and right now we’re in one of growth or expansion. Once it becomes clear that the economy is no longer growing, buyers, lenders and businesses will collectively cool off. Trying to sell a business when the immediate outlook is uncertain—even if you’re early and on the front end of a recession—will naturally be more difficult. Remember that buyers set fair market value. If they see a downturn on the horizon, the sale price they’re willing to pay will reflect that, even if the economy is still stable for the time being.
The Impact of Timing
Selling in a downturn vs. an upswing can have a major impact on the wealth you accumulate from the sale. For example, if your business is worth $10 million, you might be able to fetch a 20 percent premium—$2 million—while the market is ripe. If you wait until a downturn, the sale price could drop 20 percent. That’s a $4 million swing in the money that you walk away with from the sale.
When establishing an exit roadmap, we consider owner readiness, business readiness, and market readiness. Right now, the market is resoundingly ready. That means the only questions left are whether your business is ready and, most importantly, are you ready? See how Exit Consulting Group’s unique exit assessment can help you decide