Should I Sell My Business Now?

By Emery Ellinger

Many business owners are asking if this is the right time to sell their business.

After an extended recession, the economy is improving, the lending markets are loosening up, and consumer confidence is higher, making it a much better time to sell than in the last two years.

The most important issue for a business owner to consider is whether or not his business is ready to sell now. If you want to sell, and your business is in good shape, then now is a perfect time to sell it. If, however, you need to improve the profitability of your business, or strengthen your management team to be in a position to sell, then you should hold off until you have accomplished those steps first.

In this article we will examine the pros and cons of selling your business now.

The pros of selling your business now include lower tax rates, lots of buyers with capital, and less competition on the market. First let’s look at the tax rates. On January 1, 2011, the Bush Tax cuts are scheduled to expire. Therefore the capital gains rate will increase from 15% to 20%. So, for every hundred thousand dollars your business is worth, the 5% increase in capital gains tax will cost you $5,000 after December 31, 2010. For larger businesses that will translate to $50,000 less for each additional million dollars.

Another reason to consider selling now is that there are many qualified buyers actively searching for good businesses to buy. Most people do not realize this, but there are over 1,600 private equity firms in the United States with over $1.2 trillion dollars in buying power available today. Private equity firms usually buy all or a majority stake in companies in all industries.

So, there is a significant amount of capital to buy mid to large size businesses. Private equity companies are interested in buying companies that have cash flow or EBITDA (Earnings before Interest Depreciation and Amortization) of over $1,500,000 per year. The greater the cash flow, the more the private equity firms will be interested in your business.

Smaller businesses are even more attractive to individual buyers right now for two reasons - the high unemployment rate and government backed loans. With the unemployment rates historically high, people are exploring ways to make a living. Many will choose to buy an existing business with cash flow. This trend will continue for quite a while until the job markets improve.

Also, smaller businesses worth under $5mm have the opportunity to acquire Small Business Administration (SBA) loans made through SBA lenders throughout the United States. These loans are perfect to help buyers acquire small businesses. A buyer can put a 10%-20% down payment on a business and borrow the rest. On a business that sells for five hundred thousand dollars, the buyer would put down at least $50,000 (10%) of the purchase price. This is a very attractive financing tool for business buyers.

The last important pro for why you may consider selling now is that there is less competition on the market right now than there will be in years to come. Why? Because the Baby Boom generation is starting to retire and a large wave of businesses will be hitting the market in years to come. If you are a seller, you want to get ahead of this wave.

The cons are that your business may not be ready to sell or might not be as valuable as it once was, depending on your sales, profits and other industry trends. If your industry is one that has been decimated by the recession, such as a housing related business (flooring, kitchens, roofing, HVAC), then unless your business is performing especially well, it will be a very tough sale.

Another con is that the economy and the lending markets are back to a normal cycle. So business valuations are lower now and banks are stingier in making loans.

In conclusion, each of these pros and cons should be considered before selling your business. Nevertheless, if you are ready to sell, and your business is in position to sell, then now is just as good a time as any.

About the Autthor
Emery Ellinger is Chief Executive Officer of Aberdeen Advisors, Inc. Emery was the # 1 Top Dollar Producer in the Southeast for selling businesses in 2008 for BBN, America’s Largest Network of Business Brokers. Emery advises and sells businesses in the healthcare, manufacturing, business services, distribution and technology industries. For more information visit us on the web www.aberdeenadvisors.com or call 727.369.8204