Around the Web: A Week in Summary
A recent article from BizBuySell.com entitled “Small Businesses Are Selling for Highest Prices on Record, According to BizBuySell Report” explains the current state of the market and what factors to be aware of going forward.
Currently the market is on track to reach record numbers again this year. The third quarter report from 2018 shows that it is currently a market that is favorable to both buyers and sellers. This is because sellers are providing businesses that are overall more financially stable and therefore buyers are willing to pay higher prices for them. While this is excellent for the confidence levels of both buyers and sellers, and the market shows no signs of slowing down, BizBuySell warns that potential buyers or sellers should keep an eye on the following things:
- Tariffs: Currently there is a split in opinions on the benefit (or potential damage) that the new tariffs can have on businesses. It is predicted that if they remain high over a long period of time that it can reduce the profitability of many businesses.
- The elections in November: Any reshaping of party lines and related regulations could cause both buyers and sellers to change their plans.
Overall, the market is currently strong, healthy and equally beneficial to both buyers and sellers. For anyone considering the purchase or sale of their small business, now is a good time to take a hard look at pulling the trigger.
A recent article from Divestopedia entitled “Timeless Value Trends for Mid-Sized Businesses” analyzes data compiled from nearly 700 business sales and recapitalization transactions in the lower middle market. This data showed some clear trends regarding the value of a business for sale.
In a pool of businesses for sale that was comprised of 11% valued at less than $1 million, 64% between $1 million and $25 million, and 13% valued over $25 million, data showed that the majority of these businesses sold at a multiple between 3x and 6x EBITDA. However, it is important to take into consideration that EBITDA is not a failsafe predictor of how much a business will sell for. Factors such as the value of assets, whether a company is growing or shrinking, volatility of revenue, and patents can all drive a significant difference in the value of one company compared to the next.
For those looking to sell their company, it’s imperative to remember that the view of the buyer is ultimately what determines how much your company will sell for.
A recent blog post from Exit Oasis entitled “If You Want to Sell Your Business, First Forget What You’ve Learned About Selling Other Things” uses the example of selling a house to explain what is unique about selling a business.
Only 20% of listed businesses actually sell. Taking into consideration the fact that a potential buyer will most likely need a loan, which is determined largely by the amount of cash flow your business produces, this statistic makes sense. Aside from financing, the market for selling businesses is so much less predictable than that of selling most other things. Given the number of factors that go into valuations, it’s nearly impossible to predict how the sales process will go because you can’t reasonably compare the sale of your business to that of others.
When selling a business, it is important to acknowledge how unique the process is. Treating the process the same as you would for selling something else can lead to serious problems for yourself and the potential sale of your business.