Contemplating the Sale of your Business?

Regardless of your age, the age of your business, or any other factor, you should be mulling over the pros and cons of selling.

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Why? Let me rattle off a few good reasons:

• Valuations are at historical highs in many business sectors
• Sweeping, once-in-a-generation tax code changes are on the way
• Borrowing interest rates for buyers are at historical lows
• You – or a loved one – may soon experience health issues
• Burn-out and lack of energy/enthusiasm for the business has set in
• You are approaching retirement age
• Inflation is rising fast (healthcare, fuel, raw materials, insurance, etc.)
• To get top value, it takes 6-9 months to sell and typically another 6-18 months to train a buyer, making the business transition process more than 2 years long

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Business valuations are affected by many variables – most of which are out of your control. These variables rise and fall with economic cycles and political winds. Waiting 4 to 6 to 8 or more years to catch the peak of another upcycle may not be the wisest move when you consider the impact of taxes on sale proceeds. Recent analysis indicates that if most business owners wait 4 years to sell, they will need to double their net profit just to keep pace with the impact of higher taxes on their sale proceeds. Translation, if you can’t guarantee you’ll double your earnings in a sustainable way, the time to sell is now. Don’t wait.

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Also consider Covid and lockdown effects:

• Employees are currently disincentivized to work
• Vendors can no longer promise certain pricing parameters, delivery times, or availability
• Supply chain disruptions are wreaking havoc, and unusually high freight expenses are making margins unsustainable
• In some sectors, local competition has shut down, leaving large companies and national chains as your competitors
• Already-frustrated customers are being asked to wait longer and pay more
• Government's free market interference, regulation, and manipulation are on the rise
• The goods and services economy has shifted to an online model
• Uncertainty abounds

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Unfortunately, these are the times in which we find ourselves. The environment in which you built your business has gone through a paradigm shift, and it’s not changing back. The successful business of the future will look far different than that of today. If you aren’t adapting fast (remember you’ll need to double profitability to outpace taxation), you’re on your way to obsolescence.

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If all of these factors have you as concerned as I am, your conclusion might be:

• Sell while valuations are high
• Sell when buyer credit is plentiful
• Sell before some anomaly erodes the value you’ve created
• Sell before many of your competitors sell and saturate the market
• Sell before interest rates, inflation, or regulations diminish your value
• Sell before taxes claim most of your proceeds

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OR if you’re a fighter, get lean and learn to compete in this new and ever-changing environment. Buckle down for a decade of higher interest rates, low valuations, stagnant M&A activity, rising healthcare and employee benefit costs (coupled with decreasing benefits), and more.

To be frank, I’m encouraging everyone I speak with to go through the exercise of getting a fair-market valuation (like the ones we perform in-house at GaP) in order to understand their options. Dramatic times call for weighing all possibilities. I believe you should seriously consider whether or not capturing business value now for the security of your family is an option called for in these turbulent times. Don’t be part of the herd who will procrastinate and eventually make a decision to sell once valuations and business results have begun to erode. Give us a call, and let’s discuss the process of making sure your largest and most valuable asset is maximized when you need it most.

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‍If any of this resonates with you, we encourage you to take our Sellability Assessment and talk with us to see if your business makes the cut as one who can still command a great exit in this M&A environment. We will be in touch quickly to discuss the results. Click here to take the assessment.

Gilbert & Pardue Business Advisors (GaP) is a Houston-based business advisory firm serving lower middle market and middle market business owners from coast to coast through representation for Mergers & Acquisitions (M&A).

Matt Gilbert and Bret Pardue established GaP to provide owners of lower middle market and middle market businesses – those businesses generally enjoying annual revenue of $10-$75 million – with the quality of M&A representation and value-enhancement services previously only available to upper middle and large businesses. GaP brings highly experienced executives, sophisticated financial and marketing products, proven-effective processes, and fully-integrated expertise to every engagement. No other M&A firm serving the lower middle and middle markets provides the quality of representation and transactional expertise that we do.

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