Selling a business is serious business (if you’ll pardon my play on words). For most owners, their business represents the bulk of their net worth. They’ve also invested a considerable degree of time and effort into their enterprise, and made a lot of sacrifices for it too. Needless to say, when the time comes to sell, they want to get it right.
There are a lot of things to consider when selling: How to structure the sale, how to minimize taxes; how to invest and manage the proceeds. To say nothing of the personal and family issues that usually accompany a sale.
Before you think about any of that, however, you need to ask yourself a fundamental question: Is now the right time to sell?
Over the past several months, I’ve spoken to a number of professionals involved in business sales: brokers, valuators, CAs and CPAs, etc. I’ve also spoken to a number of wealthy business owners, and a few “serial entrepreneurs” – people who have built and sold a number of businesses over their careers.
Based on these conversations, and my own observations of certain macroeconomic issues and trends, I believe now may be a very good time for owners to sell.
Are such issues more important than personal issues such as your age, your life goals, your desire to retire? For some they will be; for others, not so much. But at the very least, they’re food for thought.
With that in mind, I offer the following scenarios in which an owner might want to think about selling. Take them not as advice, but rather a starting point for your own consideration of the question.
You don’t want to “fight” again
I’ve spoken to a number of business owners who had to fight tooth and nail during the Great Recession. Through a combination of business smarts, hard work and sheer willpower, they’ve survived. They’re proud of their efforts, but they’re tired. They don’t relish the thought of going through another downturn. I think that’s a pretty good sign that it’s time for a graceful exit.
You were ready before
Last month I spoke to a Tiger 21 member from Alberta, the owner of a specialty manufacturing business that serves the oil and gas industry. He told me he was mentally ready to retire several years ago, but then the Great Recession hit, and he put his plans on hold. Money was certainly part of it – suddenly his business was worth a lot less. But it was also personal. He simply refused to leave his business on a low point.
Now that things have turned around and his company has returned to growth, he’s thinking about retirement again. If that scenario sounds familiar to you, it might be a good idea to follow his lead.
You’re wary of taxes
I’ve mentioned before how massive federal deficits are an ominous sign for high-income earners and wealthy business owners. Simply put, governments will have to pay for all the stimulus they’ve been spending, and there’s a very good chance they’ll be looking to HNWIs and owners to do it. (Indeed, President Obama’s plans to increase taxes on the wealthy is the first move in this direction.)
Now, I realize no one has a crystal ball when it comes to taxes. But it seems at least reasonable that taxes will increase over the next few years. Depending on your situation, selling now before it happens might make sense.
You’ve made the best of bad times
Do you operate a “countercyclical” business: A business that actually does better in a rough economy? If so, you’ve probably had some of the best years of your business career. But bad times don’t last forever. It might make sense to sell at a high now rather than wait for the cycle to swing up.
You want to beat the rush
You’ve heard about the baby boomers. They’ve started to retire in a big way. Some of them are business owners, which should mean that there will be a lot more businesses out there with “for sale” signs hanging on them. Simple supply and demand suggests that this will be good for buyers, not sellers. If you’re looking to maximize your sale price, it may make sense to beat the rush.
You own a business private equity might be interested in
The Great Recession was hard on private equity firms. Many turned in fine performance figures, but when it came to raising new money, times were tough. Many firms have a “five year window.” That is, they have five years to invest money, otherwise they have to return it to investors.
If you’re fortunate enough to operate a mid-sized business (over $1-million EBITDA) in an area that private equity is interested in (high tech and real estate are examples), selling now could help you capitalize on the pent-up appetite for deals.
As an aside, even if you aren’t interested in selling right now, you might be interested in knowing how big the market for your business is. Our “Sellability Score” survey can generate a confidential, complementary report on how attractive your business is to a potential buyer, and give you some suggestions on how you can improve your metrics. It’s a quick, easy, and private way to get a read on how you can boost the value of your business.
Thane Stenner is founder of Stenner Investment Partners within Richardson GMP Ltd., as well as portfolio manager and director, wealth management. Thane is also Managing Director for TIGER 21 Canada. He is the bestselling author of ´True Wealth: an expert guide for high-net-worth individuals (and their advisors)’. ( www.stennerinvestmentpartners.com) (Thane.Stenner@RichardsonGMP.com). The opinions expressed in this article are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Ltd. or its affiliates. Richardson GMP Limited, Member Canadian Investor Protection Fund.