In today’s economy, the question of what business owners should do regarding retirement and succession planning is urgent and topical. Most business brokers will convince you to advertise to sell your business to “strangers”. That is becuase it is the easiest way of getting a business listing for them and getting a sale, although not always a sale at the maximum possible price.
At EurekaMax, our business sales are conducted through Ascend Corporate and our target list will be more comprehensive, we will investigate the pros and cons of selling your business to:
- Buyers on our database
- Buyers attracted by our extensive advertising (this always creates competition for your business)
- Investor groups
Many are seeking answers as to when would be the right time to sell.
The truth is that most business owners lack a succession plan. Meanwhile, some industry “experts” are advising owners to ride out the current market dip and wait for better times before they exit. BUT there has actually been no measurable market dip in business valuations for good businesses. There was really just a short term blip for businesses that sell luxury items.
Right now, there are still more buyers than sellers in the market, and a good business is still achieving a similar multiple of its net income when it sells as would have been achieved during the last few years.
We estimate that 25 per cent of business owners wish to sell in the next five years, many of these whose owners who are planning for retirement as they approach 60-65 years of age. In addition there will be those who are forced to sell due to ill health, divorce and those simply wanting a change. That means that about 120,000 businesses could hit the market during the next five years, or 24,000 annually – more than 10 times the number that are currently listed for sale (currently about 2500 good and bad businesses).
The question I have (remembering my high school economics teacher’s explanation of ‘supply and demand’) is, what will 10 times more supply do to, first, pricing, and then demand?
It is valid to ask whether a business owner exiting today could achieve a better sale price now than if he waits for five years and joins the rush?
There are still more buyers than sellers, and any good business will stand out in the current climate.
A fair question on the reader’s lips would be whether these are the thoughts of a business broker wanting more businesses to sell. Of course we would always like more, though things for our business are looking very good right now. I think the important distinction is that purchasers want more opportunities on the market. That creates a strong demand and helps to maintain prices.
If in the current market there are about 2,500 businesses (good and bad) for buyers to fight over, they will be spoilt for choice if 24,000 hit the market in the same year, as is estimated. Having more buyers than sellers in the current market gives a business owner an opportunity to defend their price in the negotiations. This won’t be the case if the numbers flip – the buyers will be in a far stronger negotiating position because of the much wider choices available to them.
Ultimately, if you want to sell sometime in the next five years, it seems less of a risk to sell now. There are significantly more buyers than sellers, market and business confidence has improved markedly, and lenders are indicating that their appetite for risk is moderating. Or, you could hold on in the hope that things might improve, and take the chance of getting hit by the wave of baby boomers all exiting at the same time.
Is it worth taking the risk of holding on for what may be just a small upside? Maybe, maybe not. We will provide you with a clear assessment of the factors you need to address to achieve the maximum value for your business.
One option being seriously considered by many business owners today is a Management Buy Out (MBO) of the business by existing management, where the existing owners either help finance the buyout or retain a shareholding for an agreed period of time. This allows owners to retire in a controlled fashion but still keeping a hand in the business and in many cases, also getting a share of the future profits – the classical win-win situation. MBO’s and vendor finance are now much more common, and they really can help to maximize the price you obtain for your business. They’re certainly worth considering, and I’m happy to sit down and chat with you about these and other strategies to maximize the value of your business.
Call Martin Dabb ph; 0458 290 100 (Perth) or Email Me to discuss any issues or questions related to selling your business or reaching your maximising your business value.