Ten Factors to Consider When Assessing Whether 2014 is the Right Time to Sell Your Business
By Bill Quish, CEPA
Senior Managing Director, Lyons Solutions LLC
Timing is an important contributor to success in life. Baby boomer business owners, particularly those 60 or older, have significantly less margin for error when determining the best time to sell their business. Just ask those owners of similar age who missed the opportunity to sell in 2007 and 2008 before the Great Recession hit. Many of these owners, now in their late 60s, still own their businesses and some may never be able to sell.
Over the holidays, take time to consider what potential impact these and other "personal factors" may have as it pertains to your grand plan. Please note that my commentary below is specific to private middle market businesses with revenues of $10 million or more.
1. Business Valuations Are Currently Strong
Business valuations are stronger than they have been since 2000. In general, valuation multiples for above average to excellent companies are in the 5-6 times EBITDA range, or perhaps slightly higher if the company is large in size. Market leaders and companies in select industries may see valuation multiples of 6-8 times EBITDA or more.
2. The Stock Market Is Strong
The old adage is, "as the stock market goes, so goes the merger & acquisition market." Presently, the strong stock market is supporting demand for companies that are above average market performers. The stock market has been on a long bull run. A correction from today's frothy stock market valuations could reduce acquisition demand and your business' value.
3. Interest Rates Are Low
Interest rates are currently below historical norms. This is a significant contributor to strong business valuation multiples as it allows buyers to pay more for good companies.
4. The Economy Is Forecast to Grow
2014 is anticipated to show modest improvement in a subpar economy with GDP growth of 2.6%. While personal income is expected to increase more than inflation for the first time since the Great Recession hit, consumers are forecast to spend only slightly more freely. That coupled with continued stubbornly high unemployment means there is no certainty as to whether 2015 will experience a better economy than 2014. Some economists are predicting a slow-down in 2015.
5. You Expect Your Sales Growth to Slow in 2015
Buyers will pay more for businesses with accelerating growth prospects than for a business whose sales growth has slowed or is forecast to slow. The best buyers prefer companies with double digit sales growth.
6. You Anticipate Gross Profit Margin Pressure in 2015
Buyers will pay more for companies with above average gross profit margins that are increasing over time. Whether it is due to the economy or competition, flat or declining GPMs have a negative impact on what a buyer will pay for your business.
7. You Want No Involvement with Your Business by the End of 2015
Sellers, who the buyer deems to be important to retain after the company is sold, often fail to factor in at least one year of required involvement assisting the buyer post-sale. If your business' volume or profitability is in any way dependent on your continuance, this is likely the case.
8. Your Business' Industry Cycle Is Favorable
It is important for owners to know where their business industry cycle is. If it is flattening and will soon be declining, it may be better to sell now.
9. The Consolidation Pace of Your Industry Is Slowing
Buyers will typically pay higher prices for a business when the industry is consolidating. They need to do so to maintain their own business' competitiveness and viability. Owners should seriously consider selling to take advantage of a hot acquisition market in their industry.
10. You've Lost the Drive for Your Business
This is a subjective issue whose impact is difficult to assess. Recently a potential business seller told me he was seriously thinking about selling because he lost his drive for the business. He believed continuing to operate this way would be a disservice to his family, employees and customers and would negatively impact the profitability and value of his business. If you are not 100% into your business, consider the potential consequences and whether it is time to move-on.
If you have any questions regarding this article, or would like to confidentially discuss how attractive your company would be today to potential buyers, please call Bill Quish at (860) 391-8672.
© Copyright 2013 Bill Quish. All Rights Reserved.