Is Now the Right Time to Sell My Business?

June 2, 2011 - PRLog -- Is Now the Right Time to Sell My Business?

At one time or another, all business owners ask themselves this very question and often look to their attorneys, accountants, and other advisors for the answer. As any advisor will attest, there is no right answer to this question: the answer lies in the owner’s motivation and market conditions. Unfortunately, many business owners ignore the critical moment where their personal goals and market conditions meet. Current market conditions suggest that we are in a seller’s market, which means that now is the time for the small business owner considering the sale of his or her business to begin talking with their advisors.

One of the most attractive market factors presently motivating sellers is the historically low capital gains tax rate of 15%. This is the lowest capital gains tax rate in nearly 80 years, and this rate will increase substantially at the end of 2012, when the Bush tax cuts are set to expire, and into the future, according to analysts. Because a significant portion of the sales price of a business is taxed at the capital gains rate, this can mean a significant difference -- tens or even hundreds of thousands of dollars -- to sellers when they are calculating exactly how much cash they will earn to finance their post-sale lifestyle. Business sales take an average of eight months to complete, so an owner who wants to capitalize on these significant tax advantages should start the process now.

In addition, on account of high unemployment, there is an atypically large volume of qualified buyers actively looking for businesses. Many of these candidates are down-sized corporate executives with money to invest. They are between 35 and 50, have lost their job, and often have no desire to return to corporate America. Ultimately, they want to buy a business to secure their future and control their destiny, and the availability of low-interest SBA-backed financing in the current marketplace means these prospective buyers have access to the necessary resources to do so.

Meanwhile, the Baby Boomers, the largest segment of our nation’s population, have begun preparing for retirement, and the small business marketplace is rapidly becoming flooded with the best businesses that have weathered the recession. Experts predict that the largest transfer of wealth in the nation’s history will soon unfold as these Baby Boomer entrepreneurs retire and cash out of their businesses. This large inventory of businesses, along with the likelihood of rising interest rates, will drive business valuations down in the near future and contribute to a buyer’s market.

A small business owner contemplating the sale of his or her business should devote as much careful planning to the exit as he or she did when launching the business. The majority of the small business owner’s assets are tied up in the business, and the only way to diversify and reduce that risk is to turn the business into cash -- and how much cash depends on selling at the right time. Small business owners need to ask themselves the following question: if, by selling your business, you could take your chips off the table and achieve your financial objectives....why would you wait?