As independent business owners look further into 2018, some ask if this is a good time to consider selling their business.
At ClearPath Business Advisors, we counsel our clients on the importance building a sellable business — optimizing your systems, resources and processes — for higher performing continued growth and/or higher value sale. We recommend this even for clients who are not interested in selling because everything that builds a sellable business, builds a stronger business and more balanced life for its leaders and teams.
Here are a few questions we get from customers and prospects seeking perspective on our thoughts about current market conditions and opportunities.
- Any current triggers like the pending tax changes or the new FED chief to be considering?Yes, timing can be a factor for sure when you see tax law changes that could have a material impact on M&A value. For example:
-Capital Gains tax rate last changed in 2013, increasing from 15% to 20%
– The Affordable Care Act added a potential extra tax of up to 3.8%However, I would say that time passing is always a risk to a deal failing to close. Unless the new tax rates are imminent, I would hesitate to delay a transaction in anticipation of better tax benefits, potentially risking the entire deal.
- What about positive market timing?Just like anything, if you see pent up demand, you have more time.So today, you see a seller’s market which we’ve had for some time. Valuations are as high as I’ve seen in 25 years. Money looking for investment (Private Equity and strategic buyers) is still massive.You also look for specific industries and their trends – e.g., commercial construction is booming in the Bay Area and has been for 2+ years and is projected to continue for the near term.
- What are the potential negative market impacts to consider?The common thread I would say is that trying to time the M&A market is a lot like trying to time the stock market. You can see a lot of influencing factors, but anything can happen any time – and often there are factors you simply cannot control.Key to keep in mind: when negative factors hit, the buyer shouldn’t usually try to negotiate a lower price – they need to know when to simply walk away. (Look for more on this topic in coming blog posts).Ultimately the right timing is unique to each business, given a myriad of factors such as goals, market indicators, compliance and legislation.
But one thing is a constant: we have seen that strong companies, fairly valued, are sellable in any market.
About the Author: Chris Crawford is President and CEO of ClearPath Business Advisors. A multi-discipline business executive with CEO, CFO, legal and accounting expertise, he’s leveraged his skill set to build successful, sellable businesses for more than 375 companies. He can be reached at Crawford@ClearPathBA.com.