As an entrepreneur, selling your business can be as much of an emotional decision as it is a financial one. Plenty of considerations can and should go into it, rather than just the size of the cheque being cut by prospective buyers. However, in this practice, timing is a crucial aspect too.
While pulling the trigger to sell or hold on, is ultimately a personal decision, there are a few compelling factors for why now may be just as good a time as any to put your business up for sale.
1) Recessionary risks
2019 saw strong market performance despite being headlined by political and economic uncertainties, as well as rising trade tensions. With this backdrop, it still remains a seller’s market overall. The caveat here though is that markets tend to respond worse to bad news than they do positively to good news. With the overarching issues aforementioned still hanging unresolved, a recession is not an entirely far-fetched proposition. If history is any indication, in such an environment, buyers tend to retreat into their shell until the dust clears, by which time earnings multiples are pushed down due to the prevailing fear of uncertainty. As a business owner, you can take advantage of the current level of acquisition multiples still prevalent that can enhance your return on investment at exit.
2) Entrepreneurs’ Relief
In the UK, the Entrepreneurs’ Relief policy enables business owners to pay less capital gains tax when they pursue a business sale. Provided that owners meet eligibility criteria, all capital gains on qualifying assets are taxed at a rate of 10%, which is a strong incentive for business owners to be able to complete a tax-efficient exit. To qualify for this fund, entrepreneurs must be either a sole trader or business partner and own the business for at last 2 years prior to selling it.
3) Capital just raring to go
A 2018 study by leading private equity firm Bain Capital published that globally, there is more than $1 trillion of dry powder (defined as institutional capital that has not been deployed into committed investments) available to asset managers. In other words, buyers are still on the hunt for attractive opportunities that they can allocate their capital to. In such an environment, putting your business up for sale can attract significant interest, and if you are the proud owner of a well-run business, there is even better news. Because of so much money chasing quality opportunities, a well-managed business can often attract a bidding war wherein buyers compete with each other in an auction process to submit acquisition bids.
4) Cheap financing
Post the 2008 crisis, interest rates were lowered to stimulate greater economic activity by both consumers and businesses. At near-zero levels, there is really only one way for these rates to go over the short- to medium- term. This is great news for buyers as it enables them to obtain debt financing at lower interest rates. This in turn translates to greater appetite for your business as the buyers now have less equity (i.e. less of their own risk) invested in each business.
While hindsight is always perfect when it comes to timing entry and exit points in a business, there are various macroeconomic factors, current policies and other considerations that currently make now a great time to sell your business if you are ready to move on.
At Verdani Capital we offer fair business valuations whilst safeguarding employees and creating a legacy for founders.
To find out more and to get a valuation on your business, contact us.
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