Selling Your Business: Spend a Little Time Now, Reap Bigger Rewards Later.
If your business is doing well, now might be the quintessential time to sell.
If you’re a business owner, the last thing you want to think about is a future decline in the economy. An economic downturn means loss of profitability and can significantly jeopardize your business. Staying positive and motivated despite the possibility of an economic downturn keeps the business afloat. But what if you plan to sell your business within the next few years? Have you mapped out an ideal time for the sale of your company? Selling at the wrong time could decrease the value of your business and you could potentially lose money in the end, so when is the best time to move forward with your exit strategy? If your business is doing well, now might be the quintessential time to sell.
“Business is great! I don’t want to sell now. Call me in a couple of years.”
This is the response we often hear when contacting business owners. With business and consumer confidence at new highs, most small businesses are enjoying strong activity and growth. So why would anyone want to exit now?
We understand how you feel. However, let me assure you that can be the best time to sell your business. That’s when you can typically show progressively higher sales and profits, which translates into a higher valuation for your company. Buyers gravitate to companies with this sort of track record. No one’s interested in a business with flat to declining sales, unless of course they hope to steal it from you.
How will the next recession impact your sales?
Business runs in cycles. We all remember the Great Recession’s impact on business sales and profits. At that time, I was the proud owner of a marketing services business—print, mail, web, design, etc. After a record year in 2007, our sales fell 50% from peak to trough over the ensuing eighteen months. We spent the next five years recovering and clawing our way back. I’m so glad those sour days are behind me.
While small business owners are feeling great about their current business, many are starting to wonder how long this party can last. Consider the fact that since WWII, there have been 11 economic expansions, yet only two have exceeded the current expansion in duration. The longest of the two lasted 10 years from March 1991 to March 2001. According to the National Bureau of Economic Research, we are now in the 9th year of expansion from the recent depths. If you dread the impact on your business of another recession, you might consider selling before the next one hits.
Enjoy the ride, but take advantage of this time to know your valuation.
At Viking, we represent the business owner in valuing and selling their company. The first step in our process is conducting a comprehensive valuation—free of charge or any obligation. During our analysis, we’ll see opportunities to increase the value by implementing just a few relatively simple things. The biggest, perhaps, is to stop managing the P&L in a way that minimizes taxes in favor of seeking ways to maximize net income. After all, the higher the EBITDA (earnings before interest, taxes, depreciation, and amortization), the higher your valuation will be. Consider this: for every $10,000 of net income, an owner might capture an additional $30-$50K in their selling price.
We work with many business owners planning to sell in two to three years. Yet they want our valuation now for planning purposes. We’ll then update their valuation annually to see how they’re tracking towards their goal. In the meantime, they’re implementing our advice, allowing the older and often lower-profit years to drop from our three-year lookback analysis.
Plan your work, then work your plan.
So yes, business is good right now. But while you ride the wave, take the time to have your company valued. What you learn could add 10’s or 100’s of thousands to your selling price when you ultimately decide to exit. Viking can provide you with a complimentary valuation and a short list of needs to begin your valuation.