If you’ve been thinking about selling your business within the next year or so, some of the challenges starting to face the market might actually make this the right time to list it. Here are some of the factors you should consider.
Business brokers across almost every industry agree that many owners wait too long to start the sale of their companies. The ideal time to sell is when you’ve almost reached peak profitability, but still have some gas in the tank for a good push. Knowing when you’ve reached peak profitability is both an art and a science, and if you wait too late to start the sale process, it’s just that…too late. A lot of owners choose to take all the profit they can while they can, and when they see the company’s profits start to decline, they list the company for sale. That’s a huge mistake!
Buyers are looking for companies that still have room to grow, so a company whose financials are showing a downward trend simply isn’t as attractive to the market, and even less attractive to lenders who might consider financing the purchase. Another reason you should sell when you’re making the most money (at the top of the market cycle and/or shortly after a huge upward trend) is that your sale price is generally based off of a multiple of earnings or bottom line profit. So when you sell, you’ll earn 3 X (or whatever the multiple is) for every dollar of your profitability. We’ve just come off of 3-ish years or record rent increases, and your revenues should be higher than ever. Imagine if that increase in profit could be quickly multiplied between 3 -5 times…
Inflation Rate
Asking Rents YoY Nationally
If you’ve been regularly raising rents to keep up with market rates and not bogged yourself down with additional expenses over the last few years, you’re probably more profitable than you’ve ever been. Even with inflation peaking at about 9%, raising all of your operational costs, rents have risen about 19% on average nationally. High-interest rates have kept many potential home buyers (and sellers) on the sidelines, meaning demand for rentals should remain high for at least the next year or so, or until rates are seen to be stable.
Of course, we can’t forget that the high cost of money right now also affects your ability to find a buyer for your business. High-interest rates make it harder to find financing, which shrinks the pool of prospects for your business if you aren’t positioned correctly and working with someone who knows how to work with banks to verify and highlight the value of your company. The riff-raff buyers will be looking for smaller companies to buy or hoping to get a steep discount on companies they might have paid full price for a few years ago, but those aren’t the buyers you want anyway. The good news is that the buyers who drop out of the market leave a pool of stronger, more qualified buyers with more resources and generally more business sense to identify value. A professional broker has built a network of those quality buyers and also knows how to identify additional buyers to be screened and qualified before getting too far into the process.
Savvy buyers will be looking at profitability and potential, and if the numbers make sense, they will always be ready to acquire a business that’s a good fit for their needs. Don’t be scared to hit the market. Be aware of your timing, and consult with the expert who can provide the same guidance you’ve given to your clients over the years.
Whatever is ahead for the economy, we know it’s cyclical. If you’ve planned on staying in your business for a few years, your best decision might be to buckle down, look for opportunities and ride it out through the next cycle. But if you’ve been considering a sale within the next year, now might be the right time to make a move.
If you’re interested in what your company might be worth, click here or a complimentary assessment.
About the author: Patrick Hurley
He’s a Tallahassee native with almost 20 years of experience in the property management, real estate, construction, and business brokerage worlds. Having owned, operated, bought, and sold property management companies in the past, Hurley is uniquely positioned to help others in the industry find their exit. He’s been described as dependable, highly efficient, effective, and hard-working with a no-nonsense attitude. He takes pride in his professionalism and attention to detail and focuses on his client’s desired outcome.
Patrick still meets with every client and passes along as much knowledge as possible. He frequently gives back to the property management community through professional speaking and value-packed article content. When he’s not helping others with a business transition, you can find him adventure-seeking with his young family.