With $2 trillion in private equity looking to buy, is it time to sell business?
Coming out of the pandemic, the mergers and acquisitions space is sizzling. So, is it time to sell your business?
“There’s a lot of activity in the market right now,” says Jim Afinowich, founding principal and designated broker at IBG/Fox & Fin. “There’s a lot of pent up demand from buyers who couldn’t buy anything during the pandemic. Before the pandemic, there was $1.5 trillion in private equity looking for investments. Today, there’s more than $2 trillion. So it’s a sellers’ market.”
If you’re a business owner, how do you know if the time is right to take advantage of a sellers’ market that is flush with cash and sell your business?
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Afinowich says there are three indicators that it’s time to sell:
• The market is ready
• The business is ready
• The owner is ready
The market is ready to sell business
Afinowich says a business’ value falls into a range and that range depends on the market.
“Is the economy going up or is the economy going down?” Afinowich asks. “You always want to sell when it’s going up.”
• Interest rates: “Lower interest rates means investors can afford to pay higher prices,” Afinowich says. “So if interest rates are low, that’s a good time to sell.”
• Inflation: “Low inflation is also a good time to sell,” Afinowich says.
• Tax climate: “Tax rates drive sales,” Afinowich says.
The business is ready
“An analogy I use about selling a business is that it’s kind of like when you’re selling a house and you put on a fresh coat of paint,” Afinowich says. “You need to do that when you sell a business.”
Some of the questions that need to be answered to know if the business is ready include:
• Do you have clean financial statements?
• Do you have a proper management team in place?
• Do you have all the contracts — leases, supplier contracts, customer contracts, employee noncompete agreements, legal documents — in place?
“Sometimes, we get businesses and the owner is the business,” Afinowich says. “One time I had an owner tell a buyer, ‘I haven’t taken vacation in seven years. I work 80 hours a week. I’ve given my life to this business.’ I said, ‘Are you trying to talk them into buying the business or out of buying?’”
Afinowich says business owners should have an exit plan from the day they start or buy the business.
“Run your business like you’re never going to sell it, but run it like you’re going to sell it tomorrow,” Afinowich says. “Those sound contradictory, but they’re both important so the business is always ready to sell.”
The owner is ready
“We have a joke about talking to business owners,” Afinowich says. “You talk to a business owner on a Friday afternoon after he’s had a terrible week and he’s ready to sell. Talk to him on a Monday morning when he’s rested and he doesn’t want to sell.”
Afinowich says business owners must be ready to sell seven days a week. If you cannot visualize the next chapter of your life, then you’re probably not ready to make that transition. And, most importantly, are your finances in order?
“Do you have enough money to live the lifestyle that you’ve been accustomed to?” Afinowich asks. “One of the advantages of owning a small business is the business pays for a lot of things. When you retire or sell your business, you have to to pay for it all. So you have to make sure you’re prepared for that.”