Q: When is the right time to sell my business?
A: Whenever you can get top dollar for it.
Q: When is it worth top dollar?
A: When the market for private businesses is hot.
Q: When is the market hot?
A: Late in the general economic expansion cycle when corporate profits are up, stock market and investor optimism are high, and debt and equity capital are plentiful.
If you believe today’s private business climate might be “hot,” you’re absolutely right.
Our economy is cyclical. When it’s strong, all boats rise. When it’s bad, it’s bad for a majority of businesses.
Historically, this pattern of economic expansion and contraction occurs every eight years, give or take a few. The 1990s exemplified a time of rapid expansion. Profits were healthy and growing for most businesses. Around 2000, the economy started to slow down. By 2001 and continuing throughout 2002, the economy was well into a recession. Bankruptcies soared, profits plummeted, the stock market crashed, and the market for buying and selling private companies fell flat.
In 2003, the economy began to improve and companies again moved toward profitability. In 2004 and 2005, a majority of companies were showing healthy profits – some were setting records. Private business owners who had wanted to sell in 2002, 2003, or 2004 were unwilling to open their books to potential buyers. But in 2005, with profits rising, owners again became ready and willing to open their books, with hope of a sale.
Many factors influence the salability of a private company. Number one is profits. Buyers want a business that’s profitable, and base their offering price on the dollars of profit a business earns. When profits trend higher, buyers tend to assume that future opportunities to profit will await and are, therefore, willing to pay more. When profits trend lower, buyers often assume a business is failing and likely will offer less money.
The best time to realize the highest possible price for your business is when you can show potential buyers that your business is consistently profitable. And the more profitable your business, the higher the sales price you can command. All of which brings us back to where we find today’s private business marketplace – finishing up its fourth year of increasing profitability and face to face with the latter part of a general economic expansion cycle.
Translation: The market is hot and now is the time to sell. Buyers – companies, individuals, and investment groups – are plentiful, flush with cash, and optimistic about the future. And so are their bankers.
If you’re happy owning and running your business, this is neither here nor there. Just know that if and when you ever decide to sell – timing is everything.
This article originally appeared in The Business Owner Journal, the periodical of choice for owners of small and midsize private businesses. All rights reserved, D.L. Perkins LLC. © 2012.
This publication is intended to provide general information on the subject matters covered. It is sold and distributed with the understanding that neither the publisher nor any distributor or advertiser is engaged in providing legal, tax, insurance, investment or other professional advice. The advice of a qualified professional should be sought before any reader applies a concept presented herein to his or her particular situation or business.
D.L. Perkins, LLC is solely responsible for this content.
