Thursday, November 20, 2008

Should You Be Selling Your Company...Now?

The following is an excerpt from our Privately Held Company Newsletter.

It all depends! There are all sorts of studies, surveys and the like suggesting that with the "baby-boomers" reaching retirement age, the market will be flooded with businesses for sale. The consensus is that with these privately-held company owners nearing retirement age, the time to sell is now. In one survey, 57 percent of business owners said that their age was the motivating factor for exiting their business. In another one, 75 percent of owners with revenues between $1 million and $150 million stated that they looked to sell within the next three years. Reading all of this information, one gets the feeling that over the next few years almost every privately-held business will be on the market.

While there are always going to be those who feel that Armageddon is coming, or that all of these companies are going to be on the market on the day that baby-boomer owners hit 65, there are some compelling reasons to sell your business now - and some reasons that may compel you to hold off. First, we'll address the reasons to sell now. Under the Bush administration , the capital gains tax rate was reduced from 29 percent to 15 percent - almost cut in half. That is a pretty significant reduction. However, there is the distinct possibility that a new administration in 2009 will see fit to change this, and an increase is a real possibility. The tax issue is an important reason to consider packing it in now. Another good reason is that it just may be time to "smell the roses," as they say. After running the business for so many years, "burn-out" is a very valid reason for selling. Many business owners may have, without actually realizing it, let their business slide a bit. You lose a customer or client here and there and don't make the effort to replace them. Or, you don't make the effort to check back with the supplier who has promised to give you a better price on an important product or service. It's too easy to stick with the one you have been dealing with for years, even though you know the price is probably too high.

On the flip side, it is also easy to convince yourself that the business is down a bit this year, mostly due to the current economy, likely reducing the value of the company. Maybe waiting until things pick up a bit and values increase would be agood idea. Too many business owners feel this way, but unfortunately no one can predict the future. New competitors may enter your market. Foreign competition may move in. You may not have the energy or that "fire-in-the belly" you once had, so the business may slide even further.

You could also point your finger to the tightening of credit and ask, "How is a buyer going to finance the business?" Despite very low interest rates, borrowing money has become more difficult. People seem to be pulling back a bit, so maybe no one will want to buy the business. Thirty-five percent of business owners, in another survey, said they were going to hold off selling because they felt their business would continue to grow and therefore, hopefully, also increase in value.

There is an old saying that the time to plan your exit strategy is the day you start running your business. Business owners can't outgrow interest rates, capital gains or aging. The time to sell is when you are ready to sell. There is truly no right time, but understanding the tax implications now should play a very important role in the decision if you are considering a sale in the next two or three years. The mere fact that you have read this far may be a sign that now is the time to sell. To learn more about current market trends, what your business might sell for, and what your next step might be, contact us.