Dear Business Owner and Advisors to Business Owners:
You should know that 2012 and 2013 were good years to sell one’s business and 2014 was even better due to the following:
- Valuations are trending up due to low inventories of good businesses for sale
- More $’s are sitting on the sidelines
- Interest rates are still at historic lows
- Above factors have created a Seller’s Market
In 2015 we think that this positive trend might flatten and possibly start a down trend. The longer this Market runs and as more baby boomers retire, businesses will begin to flood the market and the valuations will drop on that dynamic alone. Also, the Fed has been hinting that they are ready to raise interest rates sometime in 2015 which will also increase the cost of capital.
According to William Stone, PNC Chief Investment Strategist, the US economy is in the 62nd month of expansion. The longest US expansion on record is 120 months (1991 to 2001). As you know, many economic expansions have been shorter. Mr. Stone’s view is that this expansion is “middle aged” with good fundamentals for continued viability. However, Mr. Stone was quick to point out that this expansion could shift prematurely based on external events (troubled European economy, Russian aggression, crude oil prices, etc.).
No one saw the crash coming in 2008 and no one will announce the next one. So what are you next best steps to avoid missing an optimum time to sell your business?
Start by focusing your attention, energy and resources on a 3 point action plan:
Step 1: Know what is valuable about your business today
- Ask us for a current indication of value
- Take an inventory of your companies value drivers, both +/-
- Quantify exit risks as a buyer would
Step 2: Know what you need to exit
- Determine your post transition goals and lifestyle cost
- Meet with your financial advisor to project retirement income resources and needs
- Clarify your transition timeframe – best case to most probably
Step 3: Build value quickly
- Identify 3 high impact value building strategies
- Evaluate the resources (time, money and energy) needed to implement
- Prioritize the top 3, develop and action plan with metrics and get your team on board to execute
Following the above 3 steps will make you well prepared to exit before the expansion peters out and you will have the most valuable company in your industry or geography. Also, you will have the flexibility to exit when the market is most favorable with a strong valuation defendable even in a challenging economy. You will be in an improved position to negotiate favorable terms and get more of what you want.
Do you agree that 2015 might be the ideal time to transition the ownership of a small business? If not, why not?
Harry A. Mink, CBI
Certified Business Intermediary
7 Post Office Square, # 2286
Acton, MA 01720-6286
Web Site: www.TouchstoneAdvisors.com
Originally posted by Harry Mink on on January 19, 2015 at 3:02pm