Owner readiness is the X factor in any exit. The other two components, business readiness and market readiness, are usually somewhat cut and dried. Either your business is salable, or it is not. Either the market is favorable, or it is not.
Your own personal readiness, however, can become much more complex, and at times even conflicted. Owner readiness comes from the heart. The soul. The gut. It is an emotional decision, usually initiated by a trigger event or influence. In 2021, we’re seeing a few common triggers come into focus.
1. Tax Hikes
The historic, gigantic, $1.9 trillion COVID relief bill signed into law in the U.S. in March 2021 has many ramifications beyond stimulus checks. Tax professionals are alerting business owners to upcoming income tax increases on wealthy individuals and corporations. There is also talk in the White House of potentially raising capital gains taxes. Higher taxes mean larger chunks bitten out of business transactions. In California, state tax hikes often compound federal tax hikes.
Always motivating and, for most, infuriating, the idea of the government taking more of your hard-earned money alone could accelerate any previous interest or plans you may have had to sell. In 2021, you might see a small increase in taxes as the state and Fed work out negotiations. But in 2022, there could very well be double digit increases in capital gains and personal income taxes.
2. Interest Rates
Despite the negative impact of tax hikes, owners can embrace the positive impact of low interest rates. Buyers have more money available to fund business purchases. Investors are itching to put their money to work in this government-subsidized environment and eyeing businesses that have been able to thrive during the pandemic. It is a seller’s market, and we are receiving multiple offers on many of our listings. Finding the right buyer for a salable business is a much more productive outing now than in the recent past.
3. Optimism
Remember, selling your business brings about a world of emotions. What do you want? Where are you in life? What is your win? Reflecting on the business rollercoaster and life experience of the pandemic, many owners (not to mention countries and communities) are finally seeing the light at the end of the tunnel. You swiveled, pivoted, adapted, and now you believe that things are getting better. The street fight is over, and you can step away to make major decisions such as selling.
Also remember that there are many different types of exits beyond third-party transactions, such as selling the business to key employees, passing a family business down to the next generation, or buying out a business partner. Whether you have explored the possibility of selling your business before or are considering it now for the first time, the first step is to figure out what is driving that desire.
By John Ovrom, President & CEO, Exit Consulting Group
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