Timing is everything. Almost everyone is familiar with the world’s greatest tip to stock investors, “buy low, sell high.” These simple words of wisdom are equally useful to private business owners; however, sage advice is not always easy to follow in the same moment you’re reaping the benefits of high profitability.
With the current bull market in its eighth year, the lower middle market is economically healthy across many industries. I talk to business owners and CEOs every week. By and large, they are experiencing year over year increases in revenues and profitability – and therefore, exit strategy is one of the last things on their mind.
Selling in an upbeat, healthy economic climate makes sense; at the cost of incremental short-term profits – which are effectively turned over to the acquiring buyer. However, it’s difficult to gauge just how long the bull market will last. A rising tide surely lifts all boats; but it’s wise to consider that tides go in both directions.
There are many factors at play, when contemplating the best time to sell your business. As M&A intermediaries, we see first hand that buyers pay higher valuations for companies that show rising revenue and profits over several years, and when it is reasonable to expect continued growth in the years ahead. And likewise, buyers pay less for companies when the inverse is true.
While many aspects of your business are unpredictable, certain things can be predicted with fairly good accuracy; for example, the movement of tides, and the usefulness of simple stock advice. Buy low, sell high.