Business Sale Timing: Getting It Right
BizBuySell.com just came out with a pretty surprising report on 2019 business sale activity. Surprising, but not shocking. We've seen this movie before. It gives a good indicator for deciding if now is the time to sell your business.
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What's In The Report?
So BizBuySell is the largest marketplace for business for sale listings in the United States. And they track the successful sales on their platform. While certainly not all small businesses are sold on the BizBuySell platform, this information provides a good barometer for market activity.
According to their report, a total of 9,746 business sales were reported in 2019. This is about 5% less than the 10,312 sales in 2018. And 2018 represented the largest number of sales in BizBuySell's history.
Here's a graph of business sales on BizBuySell by quarter.
Why Does This Matter?
Like the national economy, small business performance and sales tend to go in cycles. We saw this cycle from 2001 to 2008. After the peak, there tends to be a slow decline in sales before the bottom falls out. Of course precise timing is impossible, but hitting the top of the cycle (2018) signals the beginning of the end of that cycle.
For business owners in 2008 who didn't pull the trigger, most had to wait until at least 2013 before they could get paid the same amount for their business as they could have in 2008. Five years is a long time to wait. For business owners, that can mean losing four, five or more years of retirement living.
Real Life Consequences
As I mentioned before, we saw this first hand in 2008. In the spring of 2008, I suspected there was a chance that the cycle might be coming to an end. This feeling was shared by my friend, Rob Slee, who works on larger M&A transactions. Feeling confident, I shared this concern with my two clients who were in the transaction negotiation and due diligence stage at the time. We were able to get one of them closed on June 26, 2018. This was just months before the financial collapse and the end of the cycle. Fortunately, it worked out nicely for them.
It can surprise people how quickly buyers and financing dry up when the cycle ends. For business owners timing is crucially important. Getting it wrong can mean significant lost time if you have to wait for the next cycle, or money if you need to sell into a weak market. For business owners, it's better to be a year or two early than a month late.
Is Now The Time To Sell?
Only the business owner can make the decision. Unfortunately, most wait too long to sell. I'd estimate that at least 95% wait too long. Whether it's missing the cycle, or the business under-performing, missing the window of opportunity can be very costly.
The simplest way I know of to help business owners make an informed and objective decision is by answering the following questions honestly:
- Am I prepared to miss this selling cycle, endure a recession, and then work for another 5 years?
- In the next 5 years, will I be able to work at the same high energy level to keep growing the business?
- In the next 5 years, am I confident that my industry will not be significantly disrupted/changed by competition, automation or changing tastes/demographics?
If the answer to any of these questions is no, then it is time to think seriously about selling the business.
