SOLD!(?) – Is It Still a Good Time to Exit?

Selling a closely held business isn’t significantly different from selling publicly traded stocks – you never want to exit at a low, if it can be avoided – but are you sure you’re exiting near the high?

Due to unforeseen fallout from the COVID-19 pandemic, many industries contemplating “end of days” scenarios two years ago are operating at all-time high profitability levels. As record profits have continued, the ability to discount in buy/sell negotiations has declined, thereby sending transaction prices soaring. Will increases in interest rates have the desired effect of cooling the markets off enough to help drive down pricing? Or will it be too much, too late and have the effect of causing an overheated market to seize?

The sale of a business is not something that should be considered in a vacuum. Some of the factors you should consider are:

  • Legacy. Have you accomplished the goals you have set for yourself and the business?
  • What’s my number to walk away? Deciding your ideal selling price should probably be the first point, but it’s not all about the money, is it? Know this ahead of time because you only get one chance to set the opening mark.
  • What would you be doing if you no longer needed to be running the business? You should figure this part out early in the process. If the answer is “nothing,” try it on for a few weeks and see if you like how it feels. A lot of emotion comes with exiting a business, and once the adrenaline wears off, will you be satisfied with your new routine?
  • Is there a succession plan in place for the business? What would happen if the son/daughter/niece/nephew who is deemed the next generation business owner suddenly finds out this is no longer the case?
  • Do a business SWOT analysis (Strengths/Weaknesses/Opportunities/Threats). What are the prospects for the future of the business, and what’s the largest perceived risk? Is it a challenge you would like to take on, or would you rather spend that time and energy on other endeavors?
  • Do you like the people you’re selling to? This will make all the difference in how a transaction unfolds and your peace of mind at the conclusion of it.

There are many different permutations of how these questions get answered, but the one that matters most is yours. How do YOU feel about these questions? Are YOU in a position to be satisfied with an exit? This is when your circle of trusted advisors becomes even more critical. They should be asking you these questions because this decision is as much about the financial considerations as it is about the emotional ones. Closely held businesses operate on their owners’ sleepless nights and audacious dreams. Be sure the team around you will challenge you to think about the entirety of the journey you’re about to embark upon.

If you are considering selling your business, please reach out to your Withum Business Enterprise Advisor, who can introduce you to our professionals specializing in Transaction Advisory, Business Valuation, Succession Planning and Trust and Estate Planning. We’re here to help make the process seamless and successful for you.

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For more information on this topic, please contact a member of Withum’s Business Enterprise Advisory Services Team.