What Exit Readiness Means Pt. 3: Market Readiness

October 22, 2019Insights

Every exit requires three things: owner readiness, business readiness, and market readiness. In this article, we explore market readiness and what we see coming in 2020.

 

The Market Right Now

Your business is salable and you’re ready to sell it. With business readiness and owner readiness aligned, the exit is within reach. But is now the right time? What else do you need and what is at play?

As we turn the corner into 2020, the market is still ripe for owners looking to sell. However, growing concerns about a potential recession are affecting both sellers and buyers. We know that the economy runs in stages; it’s not a matter of if there will be a downturn, but when and how hard. Serious sellers want to exit now to avoid having to ride out another 10-plus-year business cycle back to a peak. Meanwhile, buyers are adding contingencies to their terms to brace for a potential downturn.

Most experts we’re speaking with are saying one to two more good years, and then it gets hazy. Considering it typically takes nine months to a year to sell, you may want to get started if that’s what you’re planning to do.

 

Beyond Economics

At the end of the day, the market comprises a willing seller and a willing buyer who agree on a price. While the concept is simple, the caveats are not. When we talk about market readiness, we’re not just talking about macroeconomics. It’s the valuation, the structuring of different price points to get what you’re looking for, the all-cash deal vs. the earnout, and many other dynamics. Selling the business typically includes risks from both parties. A typical sale has the seller on the hook for one to five years post-close, and those economics will affect the value of the transaction. Understand that your business sale will require much more than timing. You need timing, plus expertise, plus execution.

 

Factors Collide

The current status of the economy—paired with its future uncertainty—is generating enormous activity between buyers and sellers. Interest rates are low, companies have cash, and real estate values are high. Buying a business is an ideal investment right now.

The challenge for business owners is that selling at a peak often means buyers will be looking to minimize their risk. They’re putting more financing on the line and offering earnouts rather than all-cash deals. Instead of selling your business for $1 million, you might be selling it for $500k, with another $500k coming over the next few years contingent upon business performance.

 

Sell Now or Sell (Much) Later

The market is perhaps turning from ripe to overripe. Don’t let that detour you! It’s still good; buyers are just a little apprehensive and conservative when it comes time to make the deal. If you want to sell before the market turns, do it now. If you wait, you could be waiting (and working) for much longer than you bargained for. See how Exit Consulting Group can help.