Sellers often ask us if it is a good time to sell their business. My response is usually, “yes, but it depends”. The optimum time to sell any particular business depends on a lot of factors.
First of all, timing depends on the company:
- How are its business fundamentals?
- Is it growing? Flat? Shrinking?
- Is it profitable?
- What is the outlook for the business for the next 5 years?
- Does the company have a good management team in place if the owner leaves?
- Does the company have intellectual property? Is it robust? Is it protected?
- Does the company have concentration risk? Customer, supplier, etc.?
- How many family members does the company employ?
- How many personal expenses does the owner run through the business?
- Is working capital being optimized?
Of course, it isn’t just the company that matters…the state of the industry is important too:
- How are industry fundamentals?
- Is the industry growing? Flat? Shrinking?
- Are there industry buyers?
- Is the industry consolidating?
- Are there any trends or changes on the horizon that could have an impact (good or bad) on your company?
The economy also matters — the world economy, the U.S. economy, the regional and state economies, and the local economy. When the economy stalls, it can be difficult to sell anything, businesses included. Economic factors include:
- How is the economy doing? Growing? Flat? Shrinking?
- Is the economy stable? Any risks looming?
- What is going on with interest rates?
- What is the status of the Mergers and Acquisitions (M&A) market? Are strategic buyers and Private Equity Groups (PEGs) active or sitting on their wallets?
- Are lenders lending?
- Are individual buyers buying? This may be contra-cyclical. In good times, individuals may not want to leave lucrative jobs. On the flip side, when people lose their jobs, some decide to buy a small business.
Last, but not least, your situation as the owner has a major influence on sale timing:
- Why are you selling? Retirement? Illness? Death? Divorce? Burnout?
- What are you planning to do post-sale?
- Are your plans feasible? Will you have the funds to support those plans, after taxes?
- Do you have family or management that want or expect to take over the business?
So far I have brought up a lot of questions. And that’s nowhere near all of them. The point is, deciding the best time to sell a business is complex and deserves thoughtful analysis. There are few easy answers.
But, I will answer the basic question: is 2017 a good year to sell?
For the first time in a long time, most small-to-medium-sized businesses can look back and see five good years. And, importantly, owners and investors can look forward with an expectation of good years to come. It has taken almost a decade, but most companies have shaken off the effect of the Great Recession. Furthermore, in most industries, strategic acquirers, private equity groups and lenders are writing checks. So…fundamentally, is 2017 a good year to sell? In the USA, in California, in the Bay Area, and in the North Bay, YES, I believe so.
Of course, the full answer depends upon your specific company, industry and personal circumstances.
Contact Roy Martinez with an immediate need or for further information on this subject.