According to BizBuySell.com’s First Quarter 2018 Insight Report, the first quarter of the year showed continued strong business sale activity, with record-breaking sales prices and number of transactions. Small businesses sold for a median sale price of $245,000 which was the highest median sale price since the company started tracking the data in 2007 - a 3.4% increase from the same period a year ago.
Additionally, BizBuySell's latest small business owner poll shows that 72% of owners believe their financials will continue to rise in 2018, largely due to tax reform. The International Business Brokers Association (IBBA) and M&A Source 2017 Q4 Market Pulse Report reports that analysts tracking the M&A market are “expecting a sizable uptick in deal activity in 2018. Business and financial leaders expect both the number of deals and the size of those transactions to increase significantly.”
While BizBuySell comes short of calling it a sellers’ market, the outlook is positive for business owners who are thinking about selling their businesses in the near future – with an emphasis on “near.” Quarter after quarter for the last year and a half, we’ve seen a record number of transactions and increasing sale prices. But, this can’t last forever, as we know. And while the economy appears strong now, the future is always uncertain. In fact, some economists argue that we’re already beginning to see signs of an economic downturn, not to mention the sheer number of baby boomers’ businesses on the market both of which will have an impact on owners’ abilities to sell their businesses when they want to. It’s clearly more important than ever for business owners to start their exit planning now.
The Dangers of Waiting to Plan
As we recently discussed in our Exit Planning Market Pulse article “Prepare for an Exodus of Business Owners,” there is an onslaught of baby boomer business owners who are looking to retire and sell their businesses over the next seven to 10 years. The Market Pulse Report indicates that the number one reason for the sale of small businesses is currently the retirement of the owner. If boomers continue to own their businesses past the typical retirement years due to a downturn in the economy, there will be a decline in business performance, which will result in lower business values.
Even more troubling, the report tells us that most sellers are still not engaging in proactive exit planning, particularly in the main street market. Advisors report that the smaller the business, “the less likely the owners were to consult with a broker prior to their listing engagement.”
We see it too often - business owners think that retiring from their businesses will be as simple as finding a buyer when they’re ready and they will live off the proceeds of the sale for the rest of their lives. But, there are lots of other things to consider, such as whether to sell your business internally or externally, what your business is worth and how much you’ll need to net from the sale to support your retirement. You want to look at where you are today, identify where you want to be tomorrow, and determine the steps to get there.
If you are like the majority of owners, you will need to make improvements to increase business value and the salability of your business in order to attract potential buyers and realize your desired sale price. This requires time and planning.
Make Sure You’re Prepared
No one has a crystal ball that will tell us the exact timing of the next recession. While banks, global markets, and stock markets are things you can't control, you can control how you plan for the sale of your business. Business owners should be proactive in the development of their exit plans in order to be prepared, regardless of what type of economy we are in.
The sale of your business is most likely a once-in-a-lifetime transaction, and you cannot afford to make a costly mistake. Your personal future and the future of your business depend on it.