Why is now a good time to sell my business?
If you talk with people that have a pulse on the small business resale environment, you will hear that the current market has improved much over the last two years. I contribute these positive market conditions to several factors including:
1. Better economic conditions – Overall, business performance has improved. Many business owners, including the growing segment of baby boomers have postponed their retirement and the sale of their business due to poor business performance. In years 2008 through 2011 we saw very few businesses exchange ownership. Businesses are now seeing growth and owners feel better about cashing out. There has traditionally been more buyers than sellers but analyst predict the market to move more in favor of the buyer as more baby boomers exit their business.
2. More buyers – Nationally and locally Murphy Business and Financial maintains a data base of individuals that have shown an interest in owning their own business. These potential buyers have requested that we contact them when any new listing comes available before it is posted on the national websites. We keep in close contact with the top buyers that have been financially qualified and that have shown a more aggressive desire to own their own business. This environment is good for selling and creates a sense of urgency for potential buyers.
3. Average valuation SDE multiples have improved – Each business industry has a “rule of thumb multiple” which is one method to value a business. In most industries this multiple is used as a factor of the net owner benefit. Simply contact our office and we can give you information about your specific industry. This information can be tailored to like kind businesses with similar sales volumes and profitability.
4. Banks are more aggressive for lending – Prior to listing a business, owners will receive a comprehensive valuation or Brokers Opinion of Value which is a very useful tool for sellers and potential buyers. Unlike other brokerage firms, this is included in our services. It’s one of many reasons Murphy has great success rates. This valuation is a 20 page professional document including much of the needed information to sell your business including:
- A recast of your businesses financials according to SBA’s guidelines.
- The calculation of four different and well accepted business valuation methods including Multiple of Earnings, Market Multiples, Buyers Test and finally, a combination of these three methods using a weighted approach. After listing a business, we send this valuation to 3 or 4 commercial banks for their lending qualifications. These banks will give general loan requirements for the buyer and basically pre-approve the business for a loan. Unlike years in the past, banks are actually competing for loans. This is good for both buyers and sellers and it also shortens the sales cycle.
Industry statistics show 55% of all small businesses being sold are to first time business owners. I spend much of my time during a business transaction assisting the buyer with – financing, real estate & lease negotiations, licensing & government regulations and putting these buyers in contact with the proper professionals during the due diligence period of the purchase. Many buyers are treading in new found territory and need a guiding hand. I was surprised when I found that SBA rejects 68% of loan applications because they are incomplete or do not have the proper information. A sure sign that buyers need assistance.