Is Now a Good Time to Sell My Business?

When meeting with potential sell-side clients, probably the number one question we're asked is whether or not now is a good time to sell. I think it goes without saying that the number one impact this recession has on us when considering large financial decisions is fear. Whether it be selling your home, buying another, investing in the stock market, hiring employees, coughing up money for marketing, or any number of smaller decisions we face everyday, we're all afraid that we'll make a move that will hurt us down the road if things get even worse.

When it comes to selling your business, in addition to the emotional factors in handing away years of work to a stranger, the biggest fear is simply that it's not the right time. To move down this road is a major undertaking, and the fear that either you'll receive far less than the business is worth, or you'll invest a great deal of time and effort into the process and never hook a solid buyer can be crippling.

I'll try to address both these at once. Granted, there are many estimates amongst our fragmented business brokerage industry that valuations have dropped about 20 percent over the last 12 months.

Valuations, of course, are based on revenue and profits - which, not surprisingly - have also been down around the same rate amongst private businesses in the past year. That decline can have a way of spooking both buyers and sellers alike. The mergers and acquisitions market as a whole nearly ground to a halt in the latter part of 2008 and it remains anemic this year.

All of this has an interesting effect on our industry. While everyone is crippled by the aforementioned fear, there are simply more bodies out there than there have been in the past several decades. Let's examine this influx.

Buyers for small and medium-sized businesses take many forms but the most common are individuals and other companies looking to grow by means of acquisitions. The individuals are very often folks with jobs at larger companies. Those jobs that may have seemed so secure in their salaries and benefits are suddenly looking a lot more dismal. The impeding threat of pay cuts and layoffs hangs over the head of just about every human being in Corporate America. They also very often have money invested in various institutions, stocks, annuities, bonds, etc. If you as a seller were to put yourselves in their shoes, what would you do?

You can continue to slave away for your faceless corporate bosses, praying that you're not on the chopping block and that your 401k and stock options might bounce back. Or...you can assert yourself, invest your money in a small business that you can control, and grant your own job security. That's what many are doing right now and as anyone in this industry can tell you, it's lead to a massive influx of potential buyers looking for exactly that kind of opportunity.

If you're the other most common type of buyer - a company owner who's doing well and looking to grow - then you probably view the market of businesses for sale as a buyer's market. With lower valuations you can get what you want at a better price and grow your company with ease. Perhaps the most prominent example on a large scale is Oracle's recent acquisition of Sun Microsystems for $9.50 a share, 40 percent below Sun's peak value 12 months earlier.

Again, all of this contributes to the most prolific buyer market we've ever seen at HDI. Is this new influx of buyers all solid folks with money in hand? Not at all. But while we screen buyers harder than ever before to ensure that they're qualified, we (and you) still have an enormous pool to draw from.

These buyers are also aware of the fact that the shortage in credit is forcing otherwise stable companies to consider selling or taking on a partner. This plants the possibility in their mind that while in the past, a large percentage of the businesses for sale were - let's face it - going down the tubes already, an abundance of very solid business owners are having to explore their options to stay alive.

At any rate, the simple fact is that now is a great time to explore your options as regards selling. Yes, valuations may be down, but there are more solid potential buyers than ever looking for real opportunities. Not fire-sale distressed businesses that they can snap up for less than the value of the assets. No, great companies which will offer either an individual with some cash or another company looking to grow an amazing opportunity.

Will you sell for less than your company was worth a year ago? Probably. The values of all assets and securities around the world have been exposed as grossly inflated in the past few years. Still, you might be surprised what a solid buyer will offer you in terms of an exit.

All of this ignores the proverbial elephant in the room: the credit markets and their impact on our ability to get deals done. Next week we'll visit that topic and see how some creative people on all sides of the transaction are still making things happen.

We'll also discuss how you can position yourself and your business to stand out from the pack and attract buyers that really will pay you a premium for your blood, sweat, and tears.

LOI (Letter of Intent)

WHO IS HDI CONSULTING?

Our team was born from folks that know about the circumstances that bring you to the critical juncture many entreprenuers reach at some point in the life of their business. Whether their business has been providing for their families and employees for decades, or simply represents a hard-earned but short-lived venture into their industry-of-choice, at some point it becomes apparent that something needs to change. Perhaps the stress of running the company has simply become too much of a burden. Maybe the circumstances of their life necessitates a move or at least the freedom to be away from their business more than they can be currently. Or it could be that the business has become unwieldy and not all that profitable; either downsizing or growing would make life easier and help the bank account out.

Whatever the case may be, at HDI we've assembled a team of experts in marketing, consulting, and acquisitions. More importantly, we're all business owners ourselves, and through the years we've learned how to handle the most difficult of decisions.

With that in mind, I'll be using this blog to comment on everything from the stock market, deal making, and corporate finance all the way down to the day to day life of both the average small business owner as well as the men and women of our firm. I'll also be sharing the resources of business advisors the world over, as well as my own anecdotes from my years of consulting in the mergers and acquisitions industry. At best this will be a resource for all of us to improve our knowledge of profitable business practices in this uncertain climate. At worst it'll be a glimpse into my slightly disturbed psyche and the rest of us at HDI who are working hard to improve the economic landscape here in America and beyond.

ABOUT ME

I've been interested in the business world since my father paid our bills in daring fashion by starting a company overnight that's taken care of many friends and family for almost 15 years. I've also ventured out into the intimidating landscape of mergers and acquisitions as well as management consulting for the past several years. It's been an intriguing (and profitable) journey to say the least but I feel the ball's just starting to roll. We've assembled a team of entrepreneurs and folks with thorough knowledge of many different aspects of business practices and productivity. HDI is now up on its feet and ready to stretch its legs. While the hotshots on Wall Street are staring down the barrel of a shotgun wielded by an angry bear, I feel like the coming years can be exceptional for Main Street business owners and we all stand to make more money than our résumés deserve. I believe that keeping a finger on the pulse of the world of Wall Street and Washington can be of great benefit to us down here in the junior sphere where we aren't nearly as hurt by the credit crunch and Private Equity backlash.

COMMENTS AND GOSSIP

Feel free to send me your rants, raves, and scurrilous slander to j@bizbuy123.com. I'll always be on the lookout for amusing anecdotes, juicy gossip, and weighty theoretical tomes to use as material. Just let me know whether you want to be quoted for attribution. (Might be a bad idea, by the way.)

In addition, feel free to comment on the posts with the best critiques and snide remarks you've got. I'm a glutton for punishment; why else would I work in consulting?