5 Things Outside Your Conrol That Will Impact Your Ability To Sell Your Business

Hope For The Best, But Plan For Those Things Outside Your Control

We often hear business owners state the specific year when they will sell their business, such as “I will sell the business next year,” or “I will sell the business in the year 20XX….” While it is good to have specific goals, when selling a business the outside world plays a surprisingly large role in determining how many potential buyers may be interested, and the price and terms you may ultimately receive. Selling your business for the maximum value involves careful timing.   Thank you to Patrick Ungashick for much of the content of this article.

There are five external factors nobody can control, but any or all of them may play a significant impact on your success at sale:

1. The Availability of Financing. When money is tight and buyers lack access to cash at attractive rates, generally this depresses business prices. For example the graphic below from the U.S. Federal Reserve Bank* shows the surge in banks tightening their commercial and industrial (C&I) lending standards in the midst of the recent US “Great Recession.”
2. The Overall Economy. When the overall economy is strong, business sales prices generally rise. In the reverse, during a weak economy business sales prices tend to fall. A rising tide lifts all boats, and a falling tide lowers all boats. The chart below shows median EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) multiples paid for U.S. companies purchased over approximately the last ten years.** As the economy has cycled through recessions and expansions, the chart shows median multiples have changed by 25% between highs and lows.
3. Your Geographic Region or Country. In many cases, different regions of the country (and different regions of the world if your business operates internationally) will be growing at different rates. If your area is experiencing difficult economic conditions relative to other locations, than can reduce your business sale price. Of course the reverse can be true as well, raising a business’s sale price.
 
4. Your Specific Industry. Industries go through hot and cool spells, where demand for businesses in that industry will rise and fall. These cycles can greatly raise or lower business sale prices and favorable terms.
 
5. Tax Policy. Known or anticipated changes to relevant tax rates can impact business sale prices, both gross and net. For example, several years ago in the U.S. federal long term capital gains tax rates increased by about 20% for most taxpayers, a change everybody knew was coming. We witnessed multiple business owner clients sell their businesses earlier than planned, before the tax rates increased.
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     Exit Planning Is Rarely Linear 

All five of these external factors change with time, sometimes quickly. To sell the business for the top price, owners need to build timing flexibility into their exit planning, and carefully monitor these outside factors. Owners also must start seriously planning their exit years prior to the actual event. An owner who wishes to exit anytime within the next five years or less needs to realize that it’s crunch time.

When you sell your business is not likely to be determined by the year you choose, but rather by whenever a willing buyer shows up with a price and terms that you are willing to accept.
If you would like learn more about how you can increase the likelihood you will be able to sell your business at the price you’d like to receive call Coach Michael Stelter at Advanced Business Coaching, Inc. (262) 293.3166.
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