A new year presents a new opportunity to capitalize on your hard work and sell your business.
Luckily, rising sale prices for healthy businesses have presented sellers with a good time to take the leap. In fact, 60 percent of owners are confident that they would receive a favorable sale price if they sold their business today.
With such optimism, it can be tempting for antsy owners to jump into a sale. However, it's important to have a clear and well-thought-out exit strategy to guarantee the best sale price and a smooth sales process. While some of these strategies are evergreen, others require more insight.
To find out more, we consulted with a panel of small business experts on what they believed sellers should consider when developing their exit plans:
Take action now. While the 2019 market is promising, the sunny weather won't last forever. The GDP is expected to slow its pace approaching 2020, which also falls on an election year -- known historically to soften sales. For owners waiting on the right time to sell, it might be wise to accelerate the process and make 2019 your selling year.
At the same time, baby boomers business owners are fueling the market with a steady supply of inventory. In fact, it's estimated that retiring baby boomers will sell or transfer nearly $10 trillion of assets in the coming decades.
"Baby boomers are entering the marketplace at a faster rate than in the past, and pricing may start to have some downward pressure," said Andrew Cagnetta, CEO of Transworld Business Advisors. For now, reports still indicate that small business sale prices are rising, but the impending effects of a retiring generation are important to keep in mind.
Invest in your business. Deciding to sell doesn't mean ownership duties take a backseat. It's critical that owners don't fall into the "last day of school" mindset and neglect their responsibilities. In fact, once deciding to sell, it's more important than ever for owners to invest in the business.
"Be proactive in preparing your business for sale," said Matt Coletta, co-founder and managing partner at M&A Business Advisors. "Understand the key items that motivate a buyer in choosing your business over other businesses on the market." Upgrading equipment, increasing marketing efforts and removing excess or obsolete inventory will not only increase the value of the business, but prove to buyers that the business has not been neglected.
Prepare your financials. In addition to interest rate hikes, rising labor costs and other overhead expenses have the potential to cause declines in revenue. Small businesses across the board are struggling to compete with the salaries and benefits offered by larger corporations; in the third quarter of 2018, labor costs increased nearly one percent.
With such a large number of healthy businesses on the market, buyers are doing their due diligence and evaluating the long-term profitability of each opportunity. While revenue declines may not be significant, it's important to have a good explanation for these variances and how they relate to fluctuations in the economy.
"Clean up your financials and have consistent reports," said Ron Johnson, chairman of ABI Business Sales, Mergers and Acquisitions. "Have profit and loss statements and balance sheets for at least three years -- five years is better."
A strong, favorable market is motivation enough for owners to sell. Yet, it's difficult to predict the future. With profitable businesses fueling the market and an election year on the horizon, 2019 could be a pivotal year. While these are only predictions, sellers should consider taking advantage of this high point rather than risk having to wait longer to sell. Following the advice from our experts, owners who take action now, invest in their businesses and prepare their financials can be confident they're securing the best possible sale.