There are a lot of small business owners who planned to sell their companies and retire within the past year, on their own terms, but had to change plans. For many of these people, shutting down their companies caused them to fall behind in their retirement goals. Many were forced to dip into retirement to help keep their business funded. If you find yourself in this position, or have been reluctant to sell because you are concerned that your business lost value, here are a few reasons why it this year is a great time to sell and get retirement back on track.
Large Number of Buyers Available
With so much of the workforce displaced during the pandemic, many of these people explored alternatives to the original work model. A recent Yahoo survey shows that 60% of the adult population dreams of owning their own business. The pandemic caused many unemployed workers to explore this dream, which became evident in the heightened demand for existing businesses. According to another recent survey by BizBuySell, about 21% of new buyers identify as being recently unemployed.
In addition to a new influx of buyers from hopeful business owners, private equity firms are also on the lookout for existing, proven businesses. There is a huge amount of unused cash in private equity that investors are ready to spend. Many of them are looking for pandemic-proof businesses, but valuations in those companies have gone up a lot. For this reason, they are also looking for recovering businesses. Being the owner of a business that was negatively impacted by COVID-19, doesn’t mean you have to take a discount. The increased demand has helped to keep prices stable, and even steadily increase as the economy resumes its recovery.
For Southwest Florida business owners, the news is even more encouraging. Population is increasing and development is on the rise. The pandemic gave many people the chance to reconsider their location and move to a warmer environment. Fort Myers, Naples and Sarasota continue to be among the most popular places to retire or relocate. Some retirees move to Florida not only looking to unwind, but also pursue small business ventures that can occupy their time.
Beat the Baby Boomers
As more baby boomers start moving into retirement, the entrepreneurs of that generation will need to find buyers or successors for their businesses. When the majority of retiring boomers bring their businesses to market, buyers will be presented with a lot more investment options. The resulting increase in supply will create a buyers’ market where your business will have to compete with a ton of others, even from within the same industry. Selling soon, while the market is fairly even and does not yet favor the buyer, can help you sell for more, and faster.
You’ve Had Offers
Many business owners have at some point, received unsolicited offers from potential buyers. Some of these are casual offers from investors who are just “kicking the tires”, while others may be serious. If anyone has already shown interest in your company, it may be time to prepare it for sale. A business broker can help you separate the serious buyers from the insincere ones, and prequalify them as well.
Potential buyers often approach business brokers looking for businesses to purchase. It can take them a while to find something that they want to invest in. For this reason, business brokers have long lists of qualified buyers who are ready to make offers. If you decide to list your business for sale with a broker, chances are they already have a match for your business waiting.
Maxed Out Potential
Is business beginning to plateau? Do you feel like you have taken it as far as you can? If you feel like you cannot grow your business any further, it might be time to sell. Maybe your desire to run the business and expand has dwindled. Maybe you do not have the resources to take it to the next level or do not want to risk your savings on expansion. Some businesses require new skill acquisition, particularly technology-related skills, to keep up with the industry. Perhaps you are not willing, or don’t have the passion to invest your time in continuing education. It is perfectly normal to be experiencing these things, but they may be a signal to sell. Potential buyers could be enticed by the existing value and opportunities for expansion that you are unable to act upon.
Low Interest Rates and Loan Incentives
Interest rates have started to creep up, but remain at historic lows. The fed has vowed to keep rates low for the foreseeable future, but there’s no telling how long this will really last. While rates are low, the cost to borrow money is less expensive, making it easier for buyers to qualify for loans, therefore increasing their spending power. This means that more buyers are qualified that may not have been if interest rates were higher. It also means that those who are already qualified can pay a higher asking price, since they would not be spending that money on interest.
In addition to low interest rates, SBA loan incentives make buying an existing business both easier and more attractive. For businesses closed by September 30, 2021, the SBA will pay the borrowers’ first 3 months of principal and interest and waive their guaranty fees. They are also increasing their loan guarantee from 80% to 90%. This is great news for buyers, but it also makes it a great time for sellers to sell. Whenever money is available like this, buyers will be eager to spend. Since the incentives have a deadline, they need to spend fast. The loan savings also mean that they have more cash available to spend and invest in your business. As the deadline gets closer, the seller’s negotiating power will also increase, as buyers will not want to be held up by details that could cause them to miss the SBA’s deadline. All of these circumstances favor business owners who want to sell and do so quickly.
With an increase in capital gains taxes pending, selling this year as opposed to next could make a big difference in your profits. Depending on the value of your business, it might even make more sense to sell for less this year, rather than take tax a bigger tax hit next year. If you are depending on the proceeds from the sale of your business to fund your retirement, it could benefit you more to sell sooner rather than later.
Leave on Your Own Terms
As this past year has taught us, life can take unexpected turns. Whether it’s because of a pandemic, injury, natural disaster, health complication or something else, misfortune can happen when you least expect it. This is something all business owners should already have planned for, by formulating a solid exit plan, so they can properly prepare for the future. Keep in mind that it is difficult to prepare for the unexpected. Owning a business in Florida also brings with it the possibility of dealing with a major hurricane, which could be another significant setback. Why not leave on your own terms and prevent your plans from getting derailed again? You never want to be forced into a decision by your circumstances.
Selling Takes Time
It takes time to prepare a business for sale, and to sell it. While the aforementioned SBA incentives might speed up the sale process for many business owners, getting ready to sell requires some preparation. Even if you are on the fence about selling your company this year, you must start to prepare now. Consulting with a business broker is the best way to make sure all aspects of your business are find-tuned, so it can be listed for the highest price possible. Finding a buyer, negotiating the terms of the sale and buyer due-diligence are all important steps in the process that are time-consuming. Allowing enough time for all of these steps to occur will increase the chances that you can sell within your desired time frame.
If you are contemplating retirement from your Southwest Florida business this year, take into consideration the fact that you should act quickly to take advantage of the current market circumstances. However, everyone’s situation is different, and no two businesses are exactly the same. Contact us at CIBB, and we can perform a free market valuation of your company to help you decide if this is the right time to sell.
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