We are regularly contacted by scores of business owners that want to understand the business sale process. While they are keen to understand the process and the likelihood of a successful exit; the question that they have all been asking is, ‘is this a good time to sell my business’. The answer is yes, this is the absolute best time to sell. In fact, there is now a window of opportunity that we will never see again in our lifetimes. Here’s why:
Assuming that over the past months or years you have prepared your business for sale and your business has not been negatively impacted by Covid-19, AND you are ready for an exit the timing is probably better than you might imagine.
From 2017 through the end of 2019 our industry saw more sale transactions than in any previous 3-year period in history. Entering 2020 we remained bullish on strong buyer activity and continuing low interest rates. However, we were cautioning Sellers not to wait as we entered the 12th year of an unprecedented business cycle knowing that all good things do come to an end. The consensus from the country’s leading economists was that a recession was on the horizon for late 2020 or early 2021.
While no one could have predicted the social and economic devastation of the pandemic, we have been fortunate in our government’s response from an economic standpoint. Not only did they dramatically increase liquidity in the markets, but they also provided some degree of cushioning for the unemployed. It appears that we are seeing a rebound of the economy.
So why is it a great time to sell a business?
- Demand: there are now more buyers in the market. Whether they are seeking a change from the corporate world (forced or otherwise) or realize that they do not quite have enough wealth to see them through retirement, seasoned businesspeople are enthusiastic buyers in search of quality businesses.
- Low Interest Rates: rates remain at historic lows. The cost of money is cheap.
- The Baby Boomer Tsunami: the so-called Baby Boomer Tsunami has not impacted the market quite yet. When the millions of small and medium size businesses begin to hit the market in the coming years (beginning now) supply will exceed demand and multiples will retreat resulting in lower prices. It will become a Buyer’s market.
- The SBA effect: on April 27th the SBA resumed the PPP and announced that to further support the market for business sale transactions it would not only reduce the fees associated with an SBA loan but they took it to a new level – the SBA will now make the first 6 months of loan payments on all small business loans closed prior to September 28th Not deferred payments, not discounted payments, the SBA is making the payments for the borrower for the 6 months following the closing of the loan!
The formation of the SBA in 1953 has enabled asset-light business transactions to flourish. The SBA has at times tightened its underwriting guidelines as well as reduced the amount of guaranteed funding which put a stranglehold on buy-sell transactions. This was painfully evident in the years following the Great Recession (which was not great by any stretch of the imagination) when the SBA all but halted the program. Not only has the SBA expanded the program but the current program of effectively paying buyers to complete a transaction is astounding.
So, is it a good time to sell your business? Is it equally a good time to buy a business? The answer to both questions is a definitive YES.
In fact, if you have seen a significant decrease in revenue over the past 4 months due to Covid-19, the SBA may likely disregard this ‘aberration’ for fundamentally sound businesses – even more so for those businesses whose revenues and profits were growing prior to the pandemic.
The window for business owners to take advantage of this combination of events will be short-lived and we are unlikely to ever see this again. As of this writing, the window will be slammed shut in less than 100 days. If your time frame for an exit is within 3 years, you may want to seriously consider getting your business on the market in the next few weeks. Not sure if you and your business is ready to sell? I recommend contacting a qualified and credentialed business broker to get the facts before the window closes.
I’m Gregg Kunz, principal of Rocky Mountain Business Advisors. We are a business brokerage focused 100% on selling our clients’ business. We apply a proven process to educate, prepare, and guide our clients through the sales process so that they can focus on managing their business while we focus on a successful sale. We bring a strong sense of urgency and tenacity to every engagement to realize the highest sales price in the shortest period of time. We bring buyers and sellers together. Contact us at 303- 474-5582 or https://rockymountainba.com/ to learn more.