Could The Red-Hot Market For Businesses Be Cooling Down?
The economy is red hot, and that fact is translating over to lots of activity in businesses being sold. However, it is possible that this record-breaking number of sales could cool down in the near future. In a recent article in Inc. entitled, “The Hot Market for Businesses is Likely to Cool, According to This New Survey,” the idea that the market for selling business is cooling down is explored in depth. Rather dramatically, the article’s sub header states, “Entrepreneurs who are considering selling their companies say they’re worried about the future of the economy.”
The recent study conducted by Pepperdine University’s Graziadio School of Business as well as the International Business Brokers Association and the M&A Source surveyed 319 business brokers as well as mergers and acquisitions advisers. And the results were less than rosy.
A whopping 83% of survey participants believed that the strong M&A market will come to end in just two years. Perhaps more jarring is the fact that almost one-third of participants believe that the market would cool down before the end of 2019.
The participants believe that the economy will begin to slow down, and this change will negatively impact businesses. As the economy slows down, businesses, in turn, will see a drop in their profits. This, of course, will serve to make them more challenging to sell.
The Inc. article quotes Laura Ward, a managing partner at M&A advisory firm Kingsbridge Capital Partners, “People are thinking about getting out before the next recession,” says Ward. The Pepperdine survey noted that a full 80% of companies priced in the $1 million to $2 million range are now heading into retirement. In sharp contrast, 42% of companies priced in the $500,000 to $1 million range are heading into retirement. Clearly, retirement remains a major reason why businesses are being sold.
Is now the time to sell your business? For many, the answer is a clear “yes.” If the economy as a whole begins to slow down, then it is only logical to conclude that selling a business could become tougher as well.
The experts seem to agree that whether it is in one year or perhaps two, there will be a shift in the number of businesses being sold. Now may very well be the right time for you to jump into the market and sell. The best way of making this conclusion is to work with a proven and experienced business broker. Your broker will help you to analyze the various factors involved and make the best decision.
Copyright: Business Brokerage Press, Inc.
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Could the Red-Hot Market for Businesses Be Cooling Down
The economy is red hot, and that fact is translating over to lots of activity in businesses being sold. However, it is possible that this record-breaking number of sales could cool down in the near future. In a recent article in Inc. entitled, “The Hot Market for Businesses is Likely to Cool, According to This New Survey,” the idea that the market for selling business is cooling down is explored in depth. Rather dramatically, the article’s sub header states, “Entrepreneurs who are considering selling their companies say they’re worried about the future of the economy.”
The recent study conducted by Pepperdine University’s Graziadio School of Business as well as the International Business Brokers Association and the M&A Source surveyed 319 business brokers as well as mergers and acquisitions advisers. And the results were less than rosy.
A whopping 83% of survey participants believed that the strong M&A market will come to end in just two years. Perhaps more jarring is the fact that almost one-third of participants believe that the market would cool down before the end of 2019.
The participants believe that the economy will begin to slow down, and this change will negatively impact businesses. As the economy slows down, businesses, in turn, will see a drop in their profits. This, of course, will serve to make them more challenging to sell.
The Inc. article quotes Laura Ward, a managing partner at M&A advisory firm Kingsbridge Capital Partners, “People are thinking about getting out before the next recession,” says Ward. The Pepperdine survey noted that a full 80% of companies priced in the $1 million to $2 million range are now heading into retirement. In sharp contrast, 42% of companies priced in the $500,000 to $1 million range are heading into retirement. Clearly, retirement remains a major reason why businesses are being sold.
Is now the time to sell your business? For many, the answer is a clear “yes.” If the economy as a whole begins to slow down, then it is only logical to conclude that selling a business could become tougher as well.
The experts seem to agree that whether it is in one year or perhaps two, there will be a shift in the number of businesses being sold. Now may very well be the right time for you to jump into the market and sell. The best way of making this conclusion is to work with a proven and experienced business broker. Your broker will help you to analyze the various factors involved and make the best decision.
When is the Right Time to Tell Employees You’re Selling Your Business?
When is the Right Time to Tell Employees You’re Selling Your Business?
Owners who’ve decided to sell their business often ask when the right time is to tell their employees. In my experience, the best practice by far is to wait until the sale of your business has closed – and you’re introducing your employees to the new owner.
Why?
Because the more time an employee has to worry about how such a change might affect their pay, responsibilities, or job security, the more likely they are to deal with the unknown by seeking a new position. The bottom line is that losing essential personnel can negatively impact both the value and the sale of your business.
Many owners – especially those who consider their staff family -are uncomfortable with the idea of keeping secrets. It’s important to remind yourself, however, that waiting until personnel can meet and interact with a new owner before bringing them up to speed is in the best interest of your business as a whole – and that includes the people who work there.
I would suggest that taking one or two trustworthy team members into your confidence – a general manager, or CFO for example – might be beneficial in certain situations. In fact, some buyers will want to cement relations with key personnel by bringing them into the fold early and offering them a long-term contract, equity position, or performance incentive.
In cases like these, revealing the sale of your business before it closes is at the discretion of both buyer and seller.
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When Selling Your Business What Kind Of Buyers Are You Most Likely To Meet?
Selling a business can be an exciting and rather lucrative time. But going through the sales process means embracing the notion that you’ll have to be very prepared for whatever might be thrown your way. A key aspect of preparing to sell your business is to know what types of buyers you’re likely to encounter.
It is only logical to anticipate the types of buyers you may be dealing with in advance. That will allow you to plan how you might potentially work with them. Remember that each buyer comes with his or her own unique desires and objectives.
The Business Competitor
Competitors buy each other all the time. Frequently, when a business is looking to sell, the owner or owners quickly turn to their competitors. Turning to one’s competitors when it comes time to sell makes a good deal of sense; after all, they are in the same business, understand the industry and are more likely to understand the value of what you are offering. With these prospective buyers, a great confidentiality agreement is, of course, a must.
Selling to Family Members
It is not at all uncommon for businesses to be sold to family members. These buyers are often very familiar with the business, the industry as a whole and understand what is involved in owning and operating the business in question.
Often, family members are prepared and groomed years in advance to take over the operation of a business. These are all pluses. But there are some potential pitfalls as well, such as family members not having enough cash to buy or not being fully prepared to run the business.
Foreign Buyers
Quite often, foreign buyers have the funds needed to buy an existing business. However, foreign buyers may face a range of difficulties including overcoming a language barrier and licensing issues.
Individual Buyers
Dealing with an individual buyer has many benefits. These buyers tend to be a little older, ranging in age from 40 to 60. For these buyers, owning a business is often a dream come true, and they frequently bring with them real-world corporate experience. Dealing with a single buyer can also help expedite the process as you will have fewer individuals to negotiate with.
Financial Buyers
Financial buyers are often the most complicated buyers to deal with, as they can come with a long list of demands. That stated you should not dismiss financial buyers. But just remember that they want to buy your business strictly for financial reasons. That means they are not looking for a job or fulfilling a lifelong dream. For financial buyers, the key point is that your business is generating adequate revenue. They are looking for a business with a management team in place not relying on the owner for day to day operations.
Synergistic Buyers
A synergistic buyer can be an excellent candidate. The reason that synergistic buyers can be such a good fit is that their business in some way complements yours. In other words, there is a synergy between the businesses. The main idea here is that by combining the two businesses they will reap a range of benefits, such as access to a new and very much aligned customer base.
Different types of buyers bring different types of issues to the table. The good news is that business brokers know what different types of buyers are likely to expect out of a deal.
Copyright: Business Brokerage Press, Inc.
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What Kind of Buyers are You Most Likely to Meet?
Selling a business can be an exciting and rather lucrative time. But going through the sales process means embracing the notion that you’ll have to be very prepared for whatever might be thrown your way. A key aspect of preparing to sell your business is to know what types of buyers you’re likely to encounter.
It is only logical to anticipate the types of buyers you may be dealing with in advance. That will allow you to plan how you might potentially work with them. Remember that each buyer comes with his or her own unique desires and objectives.
The Business Competitor
Competitors buy each other all the time. Frequently, when a business is looking to sell, the owner or owners quickly turn to their competitors. Turning to one’s competitors when it comes time to sell makes a good deal of sense; after all, they are in the same business, understand the industry and are more likely to understand the value of what you are offering. With these prospective buyers, a great confidentiality agreement is, of course, a must.
Selling to Family Members
It is not at all uncommon for businesses to be sold to family members. These buyers are often very familiar with the business, the industry as a whole and understand what is involved in owning and operating the business in question.
Often, family members are prepared and groomed years in advance to take over the operation of a business. These are all pluses. But there are some potential pitfalls as well, such as family members not having enough cash to buy or not being fully prepared to run the business.
Foreign Buyers
Quite often, foreign buyers have the funds needed to buy an existing business. However, foreign buyers may face a range of difficulties including overcoming a language barrier and licensing issues.
Individual Buyers
Dealing with an individual buyer has many benefits. These buyers tend to be a little older, ranging in age from 40 to 60. For these buyers, owning a business is often a dream come true, and they frequently bring with them real-world corporate experience. Dealing with a single buyer can also help expedite the process as you will have fewer individuals to negotiate with.
Financial Buyers
Financial buyers are often the most complicated buyers to deal with, as they can come with a long list of demands. That stated, you should not dismiss financial buyers. But just remember that they want to buy your business strictly for financial reasons. That means they are not looking for a job or fulfilling a lifelong dream. For financial buyers, the key point is that your business is generating adequate revenue.
Synergistic Buyers
A synergistic buyer can be an excellent candidate. The reason that synergistic buyers can be such a good fit is that their business in some way complements yours. In other words, there is a synergy between the businesses. The main idea here is that by combining the two businesses they will reap a range of benefits, such as access to a new and very much aligned customer base.
Different types of buyers bring different types of issues to the table. The good news is that business brokers know what different types of buyers are likely to expect out of a deal.
Evaluating A Red Hot Market For Business Sales
A new article from BizBuySell entitled 2018 Set New Small Business Sales Record as Buyers Eagerly Exit Corporate World is quite an eye-opener. Simply stated, businesses, all kinds of businesses, are selling like never before.
If you have a business and you are considering selling, then realize that now truly may be the time to jump in and put your business on the market. The market is historically hot. All one has to do is take a closer look at the numbers as outlined by BizBuySell.
In 2013 the number of closed small business transitions stood at 7,056, whereas in 2018 this number jumped considerably to 10,312. Between 2016 (10,312) and 2017 (9,919), there was a massive jump. Last year only continued to build on the already impressive numbers from 2017.
It is also important to note that the last three years have all been record years. Brokers have noted that there has been an increase in both the number of buyers and sellers.
Of course, all of this leads us to some questions. Why are so many business owners looking to sell and why now? Why is the market so very hot?
In the BizBuySell article, a surveyed owner commented that purchasing a business has become easier for first-time buyers and this factor has, in part, contributed to the noticeable increase in sales volume. Other factors cited in the article include Baby Boomer retirement, and owners selling to avoid dealing with rising operational costs stemming from increased minimum wage requirements and health care. Some of those surveyed also included pending regulations, both political and economic, as factors in their decision to sell.
On the buyer end, it appears that two factors are at play, namely, buyer confidence that the economy will continue to be strong and greater access to capital. Additional factors, such as business owners noting that their businesses were performing better, also likely contributed towards making 2018 yet another record-breaking year.
For those looking to sell, there is considerable good news. The median asking price and sale price have both continued to trend upwards. Business brokers are optimistic about the future and for good reason. Whether you are considering buying or selling a business in the near future, it is prudent to talk to an experienced business broker. A broker can help you navigate this very hot market and make a deal that is beneficial for all parties involved.
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New Year’s Resolutions & Selling Your Business
Most people fail to keep their New Year’s Resolutions. But where buying and selling a business is concerned, failing to keep those resolutions could mean an abundance of lost opportunity.
Todd Ganos at Forbes recently penned a thought-provoking article entitled The 8 New Year’s Resolutions for the Sale of Your Business. In this article, he compares selling a business to getting in shape in the months preceding your visit to the beach. It is necessary to do a great deal of planning and hard work if you want to be in good shape for the big “beach body reveal.”
When it comes to selling a company, Ganos believes that there are eight factors that must be taken into consideration. Listed below are those factors he feels are a must for business owners looking to get their business ready for “the beach.” These are the eight factors that Ganos believes are most essential and should be on your New Years’ Resolution list for your business:
- Planning
- Legal
- Leadership
- Sales
- Marketing
- People
- Operations
- Financial
In order to get your business ready, it is necessary to take a good long and honest look at each of these eight important categories.
Planning is at the heart of everything. He points out that owners who truly want to get their business ready for the market will want to adopt a focused month-by-month plan.
This plan means having discipline, developing a business plan and involving your team in the development of that plan. Once the plan has been developed, it should be reviewed with your leadership team each month.
New Years’ Resolutions fail because they don’t get properly integrated into peoples’ lives. And the same holds true for making changes in one’s businesses. Ganos correctly asserts that in order to get your business ready to sell, you have to make it an “all-of-the-time thing” in which you are constantly focused on success.
New Years’ Resolutions have to be about doing things differently, having a plan and then sticking to these changes permanently.
Working Backward: 3 Questions to Ask About Your Exit Planning
Do you remember trying to solve a complex maze as a child? You’d start at the beginning, trace a line toward what you thought was the correct path to the end, only to run headlong into a wall. So, you’d start again, only to run into a different wall. But then, someone who had experience solving complex mazes may have suggested, “Start at the end: It’ll take you through the correct path to the beginning.”
When planning for your business’ future, starting at the end is a valid strategy. “The end,” in this case, maybe a well-formed plan to fulfill your unique personal wishes: what happens to the business, your target successor, and your family if you die. Few people like to plan for their deaths, but there is power in planning. Rather than death having the final say in how you and your business are remembered, you can position yourself to have the last word with proper planning.
If you choose to work backward in your planning, it’s still wise to consider setting goals and determining any monetary gaps you may have between what you have and what you need to fulfill those goals. Once you’ve established those facts, you should ask yourself three questions as you work backward to impact your future.
Can My Business Continue Without Me?
Many business owners fund their lifestyles with money accrued from their businesses. Whether that comes in the form of a salary, perks, or stock and benefits, the business is the foundation upon which many owners build their lives and their families’ lives. For these owners, continued business success is crucial to maintaining the lifestyle they want.
The wall you might run into in navigating this maze is that your business relies on you for success. That is, without you, the business would at best struggle and at worst fail. This often implies that you cannot take long vacations; cannot face long-term, debilitating illness; and, of course, cannot die prematurely, lest your business suffers the consequences. While you may have control over your vacation time, unexpected illness or death is less controllable.
Ask yourself: “Can my business thrive without me?” Unless you’ve had the freedom to take a long break from work—without checking in and without any issues while you were gone—recently, chances are, you are indispensable to your business. If your business cannot continue without you, you might be placing your employees and family members at peril.
Do I Have a Successor Who Could Run the Business in My Stead?
Successful businesses tend to have several employees who could keep the business afloat for a short time if something were to happen to the owner. We call these people key employees. However, relying on key employees to take over at the drop of a hat can be risky. Key employees may be good at their specific tasks but struggle with ownership responsibilities. More commonly, they may not want ownership responsibilities, even if it means more money and influence. Some key employees simply want to be key employees.
Ask yourself: “Do I have someone who can take over the business right now if necessary?” This means either having an internal successor trained and groomed to take over, or having a plan to bring in outside talent to take over. If you don’t, it can be much harder to prepare your business for when you leave it, whether by choice or otherwise. If your business doesn’t have a next in command available, your family, employees, and business might suffer if anything were to happen to you.
If Something Happened to Me and My Business Sold for Full Value, Could My Family Keep Their Quality of Life?
People you care about (family, employees, charities) probably rely heavily on your business’ success to fund their lifestyles. If you were to suddenly leave the business—especially due to illness or death—those people may suddenly lose the means to fund those lifestyles.
Ask yourself: “Will the people I care about most continue to thrive without me?” While it’s impossible to replace your presence, with proper planning, it is possible to continue providing for the people you care about most, regardless of what happens to you.
Working backward can set the groundwork for planning for your business’ future, with or without you. If you’d like to discuss these three questions or any other questions you might have regarding the futures of yourself, your business, or your family, please contact us today.
Source:
Edward W. Cotney
ed@olympustax.com
Olympus Tax, Business and Insurance Solutions, Inc.
4600 Roseville Road, Ste 150 / 260
Sacramento, CA 95660
www.olympustax.com
(530) 913-0562
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