Time to Sell Your Business?

Is time to sell your business?

In these times, many businesses owners who would like to sell have made the determination to delay the sale because of a severe loss of market value of their business.  Typically, unless they are forced to sell, the owner will delay selling in anticipation of a return to a previous valuation.  This forces many owners to wait several years for earnings to rise sufficiently to produce an acceptable market value and cover debt service.

If your business has not experienced this situation and you feel comfortable with the valuation, you may want to consider a sale now.  For owners of businesses whose earnings are stable or have declined slightly, this year offers an excellent opportunity. At present there are more buyers than sellers, due partially to the many laid-off workers who want to own a business.

There are several benefits to selling now:
1. The pool of potential buyers is as big as it will likely be for many years.
2. The 1031 Exchange still exists.
3. The capital gains will never be lower.
4. Proceeds can be invested in real estate or stock at deeply discounted prices.
5. Projections call for a major increase in the number of businesses, which will come up for sale in the coming years.
6. Interest rates are exceptionally low, reducing financing costs for sellers and buyers.

All projections indicate a dramatic increase in the number of businesses for sale over five years ending in 2013 as baby boomers retire. This increase in the seller pool will put downward pressure on prices. This also may be the last year with a 15 percent capital gains tax. If capital gains taxes increase to 20 percent to 28 percent--as federal lawmakers propose--you can make 6 percent to 18 percent more by selling at a 15 percent tax-rate now.

In addition, an owner might consider the "Bird-in-the-Hand" approach.  If you realized $1 million in a sale vs. $2 million in five years, you need to consider that the usage of the money (i.e. $1 million dollars), in your hands, invested wisely could realize $2 million in five years. Compared to:  The earnings of the business would have to grow at 15 percent each year for five years, to achieve this doubling of value or $2 million.  With this in mind and the proposed increases in taxes, cashing in now may be something to consider.