You’ve decided to sell. Now how can you get the most for your business? You need to “clean up your act,” so to speak, and address some operational issues that may not have been a priority for you over the years.
When you’re ready to retire, or exit your business, you may think selling to a competitor is your only option. But competitors are seldom your best buyer. They’re rarely willing to pay top value because they’re already established in the market.
There are several myths about selling a company that can be misleading or simply not true. Here are a few common myths about selling a company:
Labor issues are affecting the M&A market. For some business owners, it means decreased value because they can’t find people to maintain operations or replace the owner after a sale. But labor shortages are also sending buyers to market. When they can’t hire the talent they need to grow organically, they look to expand through acquisition instead – buying companies with fully staffed teams.
Scott Bushkie sat down with friend and peer, John Brown from Business Enterprise Institute (BEI) to talk about exit planning!
The M&A world isn’t quite sure what to expect in the next recession. Private equity players weren’t nearly as dominant through the last market downturns. But today those firms have $1.8 trillion in uncommitted capital they need to put to work. With money to spend, and a timeline to do it, private equity may help keep valuations high.
Tom West is considered by many to be the founder of modern day business brokerage. A few years ago, he calculated what percent of businesses on the market actually sell. For most small businesses, those with sales of $10 million or less, he figured fewer than 25% actually transition to a new owner. There are a lot of factors driving down success rates, but here are the five I hear about most often:
From 9/11 to the Great Recession to COVID-19 – after every hiccup in the world, buyers want to know how your business stood up against adversity. In 2015, buyers were still asking, “But how’d they do in 2009?” Today, buyers want to know how you’re getting through the global talent shortage.
Right now we’re in a strong seller’s market. Despite the economic uncertainty and turmoil in the world, mergers and acquisitions has not cooled down. It’s economics 101, supply and demand, and there are just more buyers than sellers on the market.
You can practice some back of the napkin math to value a company, but it’s not always reliable. A company with $3 million in EBITDA, may, as a general rule of thumb, sell at a 4x to 6x multiple. In other words, it might sell for $12 million to $18 million in an average market.