Successfully selling one’s business requires a combination of skill, timing and patience. Owners who are ready to move on have to make hard decisions on whether it is the right time to sell or whether they need to hold on until circumstances change.
The current environment is not especially favorable for those looking to sell due to the volatile state of the economy and Fed rate hikes, which exert pressure on middle-market mergers and acquisitions (M&A). This can create anxiety for those newly in the position to exit or those who did not take advantage of more favorable recent conditions.
To understand the current state of affairs for owners looking to sell, we conducted a survey in April of more than 500 U.S. business owners. Owners selected for the survey either were looking to sell their business in the next five years or recently sold a business.
Here’s what we learned:
- Respondents expressed remorse that they didn’t sell earlier and held serious concerns that they will ultimately receive a lower business valuation when they do sell.
- Owners were not making the requisite preparations on an appropriate time scale to prepare for the best possible deal for their business.
- Not enough owners were engaging financial advisors to help them not only with the sale, but also with the considerations that come after the fact.
Concerns about current market conditions
Our study found 40 percent of business owners regret that they did not sell their business during recent periods of higher valuations, and 61 percent were concerned they will not get a proper valuation for their business when they sell. While owners cannot control market conditions, they can prepare themselves for an eventual opportunity that will come along at some date.
Those looking to sell can learn from the mistakes of those who recently exited. Our survey found 73 percent of business owners who sold their companies in recent years spent less than two years preparing for an exit (32 percent spent less than a year) and 80 percent wished they had started preparations earlier. We recommend owners engage with financial planners years in advance to ensure they and their families are ready for a sale.
The survey found that only two-thirds of business owners who were looking to exit their businesses turned to financial advisors for advice. Preparing to sell one’s business is not just about the actual exit; there are just as important decisions that come after the fact, such as having a concrete plan for the proceeds, which includes smart tax strategy and estate planning. Forty percent or less of respondents have engaged in or contemplated incredibly important decisions such as discussing family wealth with their heirs, creating an estate plan or establishing a concrete plan for what to do with the proceeds. Financial advisors play a vital role in helping business owners prepare for exits, including these key issues beyond the close of the sale.
There are positive signs amid the uncertainty: a fifth consecutive month of $200 billion in M&A volume and 70 percent of M&A buyers were corporate, which creates more volume than private equity buyers.
Never too early to prepare
Selling one’s business in times like these is somewhat like the stock market during a bear run. Those who can bear to keep running their business until times improve should strongly consider it. But the planning for that eventuality should start today.
Fortunately, the solution to all these challenges is simple: working with the right financial advisor can help with the litany of needs a business owner must take into account. This includes post-sale spending and investing needs, financial planning, garnering the needed support of family and friends and making sure the owner’s legacy is satisfactorily maintained.
When looking to sell one’s business a trusted financial advisor is well worth the cost, especially for first-time sellers. Ensuring that a financial expert is part of your team of advisors at the right time will set up your family well for the years ahead.
The M&A market isn’t a monolith. While the overall market may be challenging, the right buyer for any one business may be right around the corner. Every owner looking to exit needs to be ready because good businesses will find the right buyers when the time is right. Regardless of the circumstances of today’s markets, business owners should begin carefully planning their exits to ensure they are ready when conditions are ripe.