Timing the Sale of Your Business: Why Waiting May Not Be the Best Option
Ben Bernanke of 60 Minutes said, “It may take four or five years before we are back to a more normal unemployment rate.” This quote garnered a lot of press attention. I wonder why? Even though the recession is technically over, it doesn’t mean the economy is humming and everyone is happy. The 2001 recession technically lasted only nine months, but it took approximately four years for unemployment to stabilize and for the business climate to return to a semblance of normality. Why should we expect the aftermath of this recession to be any different?
As a business owner, take a moment to consider the likelihood of slow economic growth over the next three to four years. Ask yourself, “How should this affect my Exit Plan?”
Right now, a number of my clients are seeking to sell their business, and they all have a similar outlook on the current economic situation. They are saying, “Why should I keep working for another three or four years if, at the end of that time, my business is not worth much more than it is today?” This question is usually followed by another: “Why don’t I sell my business today and make the most of the years I have left, doing what I enjoy?” This is a pretty persuasive argument for selling now. Still, it requires further explanation.
First, these are clients who have an Exit Plan in place and have determined that the sale of their business at this time would fulfill their financial needs. For them, working is an option and not a necessity. As I tell them, “At this point in your life, if you are able to fund your desired post-retirement lifestyle, it means you are no longer working for yourself. Rather, you are working for your heirs, charities, and the government – because they are the ones who will reap the benefit if you keep on working.” You certainly should work for as long as you enjoy it – but not one minute longer.
Secondly, these are clients who understand that you can’t “time” the market. Most wealth managers know it is foolish to think you can make more money by timing the stock market. In the same way, I counsel my clients that “barring having a really good crystal ball,” they should consider selling today, because there is really no way to know what tomorrow’s market for business sales is going to look like.
According to Inc. Magazine, 80% of U.S. business owners are approaching retirement age and are currently considering selling their business. When the economy gets back on its feet, these baby boomer business owners supposedly will flood the market. This could erode the selling prices of businesses, as in any circumstance when supply overwhelms demand.
Yet right now, interest rates are low, and there are many acquirers with substantial financial capabilities. Larger companies have amassed cash instead of investing in their own businesses, and they are looking to expand into new products and markets. Private equity firms continue to raise incredibly large amounts of capital each year – in the neighborhood of $70 billion – and they are actively seeking to acquire midsized companies. Most importantly, right now there are not a lot of good companies on the market. So maybe the time is right for you to sell your business, too.
