(MCT)—Sometimes the owner of a business has no choice but to sell a thriving enterprise, such as in a divorce, the splitting of a partnership or the death of a major shareholder.
But timing is key when it comes to getting the best price for a company, and depending on how well a business is performing, a good time could be right now, according to investment banker Fred Rock, who helps clients buy and sell companies.
“The best time to sell your business is when your business is doing well, the prospects for your business to do well are easily explainable and there’s a perception that the economy in general is going to do well, says Mr. Rock, managing director of Focus Investment Banking, a Washington, D.C.-based firm with a Pittsburgh office.
“When you put all those things together, you can get the best sale price for your business in that kind of environment,” he says. “For example, if your business is doing well, but the economy isn’t doing well, you’re not going to really get as good a price because buyers look at the economy. They’ll wonder how long you will keep doing well if the economy stays bad.”
With an estimated 76 million baby boomers in the pipeline turning 65 at a rate of 10,000 per day for the next 15 years, according to Pew Research Center, many businesses owned by people in their 60s will be changing hands. The 2011 U.S. Census reported there were 7.4 million small businesses — firms with 500 employees or less — in the country providing jobs for 113 million workers.
The choices for business owners nearing retirement often boil down to passing the businesses to heirs or selling the company for retirement income.
A robust economic outlook does more than boost the price of a business; lenders also are more inclined to provide money for business purchases when the economic outlook is bright.
The Dow Jones Industrial Average and the S&P 500 closed at all-time highs in June, bolstered by a U.S. jobs report that noted that 288,000 jobs were added that month. The bull market for stocks is in its sixth year and with interest rates still hovering near all-time lows, cheap money has been greasing the wheels of business growth.
“You’ve got good profit numbers right now,” says Adam Yofan, president of Alpern Wealth Management. “A lot of S&P 500 companies have beaten their own earnings estimates. The average return for the stock market over the last five years has been in the high teens — close to 20 percent — whereas the long-term average return has been in the high single digits.”
Ray Vargo, director of the University of Pittsburgh’s Small Business Development Center, says he would equate selling a business to selling a home, both of which stand a better chance of fetching a higher price in a strong economy.
And like selling a home, business owners must prepare a company for sale.
