This is one of the most popular questions I get asked by business owners. They are thinking about it more than they have in years. They are afraid of what lies in the future. Is this the end of the pandemic? What will be the economic impact to the world and to their business in particular? They are tired. Some businesses thrived in the past 18 months, others had to fight like hell to stay afloat, while others did not survive.
The other major factor causing this increased focus is TAXES. No one knows exactly what tax law changes are coming but it seems clear that there will be changes that would negatively affect both current income, as well as capital gains taxes. Taxes should not be the sole basis for a decision. But it needs to be considered and I would suggest having a discussion with your CPA about tax mitigation strategies. There are ways to structure deals that substantially lower or even eliminate taxes for certain companies with certain structures.
It is also true that more deals are getting done at higher prices then before the pandemic. There are several reasons for this trend. First, there is pent up demand. For a period of nearly four months, almost no deals got done. There is also a lot of capital available at lower than historical costs. The pandemic also caused investors to focus on less risky investments. They want strong companies that demonstrated their ability to survive and thrive during this recent storm.
So, is this a good time to sell a business?
The quick answer is yes, it is a good time to sell your business, IF you have a strong, well-managed business that does not depend upon you and that produces predictable profits and cash flow.
You might say that’s a lot of qualifiers. And it is, because the differences between businesses that say yes to all those qualifiers and those that do not could be millions of dollars of value.
In our database of over 40,000 businesses, it has been found that most of them are not saying yes to these qualifying questions. They are not saying yes because they have not implemented professional management practices. On average, those 40,000+ businesses are valued 26% lower than they should be. That means if you have a business that is worth $10,000,000 today, it has the potential of being worth $12 to $13 million simply by implementing professional management practices.
The management practices we are talking about include having a fully functioning senior management team that does not depend on the business owner to operate. Also, having well documented procedures for all aspects of the business from sales and marketing, accounting, human resources, and of course, operations. Another set of practices relates to your customers. Do two or three customers make up the majority of your revenues? How do you keep tabs on customer satisfaction? Is there a component of your revenues which are recurring?
You can sell your business at any time, but depending upon your goals and the state of your business, it might be worth taking some time to implement some professional management practices and tax mitigation strategies that could boost the money in your pocket.