Like most things in life, when it comes to selling your business, timing is everything. When growing your business is your focus, you may feel you don't have time to look beyond day-to-day operations. But the time is ripe to consider how and when the sale of your business will optimize your return on investment.
John Kerschen, Managing Director, The Charter Group, shared his thoughts on timing in a recent article in the Grand Rapids Business Journal. Below is an excerpt. Read the full article here.
"For privately held business owners, the question of when to transition their business to family, the management team or to a third party, is a complex issue. Most owners will face this decision only once, and yet this one decision can have profound effects on the future wealth of the business owner, future generations of the family, the company employees and the business itself.
While each business must consider its own readiness, external market conditions such as interest rates and income tax rates can have a tremendous effect on the value an owner receives from a sale transaction:
- Low tax rates: Tax rates remain at historically low rates. Given the mounting national debt, social program costs and aging population, there will be increasing pressure to raise rates before too long.
- Low interest rates: Near record low interest rates have acted to boost business values much in the same way low mortgage rates have helped to restore residential real estate values. With low interest rates being held down by aggressive Federal Reserve Bank action, rates will likely rise in coming months and years, leading to lower earnings, higher borrowing rates and eventually lower business values.
- A growing economy: The economy continues to grow at a projected 2.0% rate for 2013 and the S&P 500 stock index hit an all-time high in July of this year. It may not be the heydey of 2004 to 2007, but it is a pretty good time for many businesses.
- Large pool of buyers: Recent economic stability, availability of low cost money and a relative absence of troubling world issues have brought out the buyers for small and mid-sized businesses.
Numerous private equity and corporate acquirers are reporting virtual bidding wars that are causing a spike in the prices commanded by sellers of profitable, quality businesses. However, national transaction statistics show only modest increases in the number of completed in the lower middle market. Most buyers attribute this to a lack of available business sellers.
What better time to be a seller than when there are many buyers anxious to buy? Finding the perfect time to sell a business may never occur. But, it sure does help to enter the market when times are good. Such times don't last forever."
The Charter Group can help you determine what time is right for you. We'll assess the value of your business and other market or internal factors to help you decide if now is the best time to sell. Contact Us to learn more about how we can help.