It has been a good year for business sales. According to broker data compiled by BizBuySell.com, there were 2,534 closed transactions through the first half of 2017, which represented a 31 percent increase in sales over the first half of 2016. Since July 2017, the report reads, nearly 5,000 businesses have been sold.
"Our recent conversations with brokers and previous research shows both buyers and sellers are confident in today's business-for-sale environment," Bob House, president of BizBuySell.com and BizQuest.com, said. "This streak of record-number transactions confirms this sentiment and suggests many are capitalizing on today's hot market."
Businesses that sold in the second quarter were, on average, listed for less time and sold for higher prices, according to the BizBuySell.com report. Sale prices rose from $199,000 last year to $229,000 this year. Asking prices also rose 12.6 percent, to $250,000, but as BizBuySell.com notes, the average sale-to-asking-price ratio remained the same at 0.92. The average business was listed on the market for just 168 days, which is just shy of six months.
As more businesses look to sell, particularly with baby boomers exiting into retirement, it's more important than ever to employ best practices before closing a deal. Here's how to sell your business properly at a time when sales values are elevated and thousands of business owners are clamoring to find buyers. [Selling your business to a larger company? Check out this handy guide for more assistance.]
What to do when selling
Just because most listings were active for about six months doesn't mean you should wait until six months before your target sale date to get your house in order. Mason Cole, founding partner of the Chicago-based law firm Cole Sadkin, advised giving yourself enough space to operate comfortably.
"[A common mistake] is not preparing enough in advance," Cole said. "Approaching your attorney or accountant six months before you want to sell may not leave enough time to put proper procedures in place."
Cole outlined several things that must be taken care of before a business sale can be reasonably closed. Those include:
- Notifying employees of the business sale
- Settling any outstanding debts
- Alerting customers to any changes to the business model
- Ensuring all taxes are properly filed
- Negotiate fair terms of the sale
Some of these items are open-ended and subject to extensions, so it's important to start the process while time is on your side.
According to Cole, the market is ripe for business sales right now, not just for retiring baby boomers who are looking for a way out, but entrepreneurs who are ready to move on or want an injection of capital.
"Interest rates are too low to last, so we are seeing companies selling for dramatically more than they are worth," Cole said. "Eager buyers are willing to overpay as long as rates stay low. This leads to a unique window for sellers to list their businesses before inventory is diluted."
Interest rates will certainly continue to rise in the future. The Federal Open Market Committee of the Federal Reserve has signaled the economy and employment situation has stabilized enough that it will begin gradually raising the target rate over the next several years. That means that even if the volume of sales remains high, the value of the deals might decrease in the long term. Cole said for business owners on the fence, making the move now might be wise.
"The best time to list your business is when you don't want to sell," Cole said. "A good owner always understands the true value of [their] business. Just as banks like to lend only when you don't need the money, the best time to sell is when you are listing from a position of strength."