It may seem odd to have to write about this, as though it’s a unique concept, but nevertheless here we are. When do you sell anything? At the top of the market or the bottom?
Having been in the business of selling businesses for over 20 years, we can confidently say there has never been a market quite like this. With soaring buyer demand and a scarcity of quality businesses for sale, record prices are being achieved for good businesses. Yet we struggle to convince Business Owners it is a good time to sell. The advice is simple; if you are considering selling your business within the next 2 years, sell it now.
The perfect storm has occurred for businesses that remain profitable that are considering selling; low interest rates, banks keen to lend even on a cashflow only basis (in other words no other security except the business), cashed-up kiwis returning home, house prices soaring which drive up net worth and a lack of businesses available to buy. The result of this confluence of factors is determined by the most basic of economic laws; the law of demand and supply. Scarcity combined with high demand drives value upward.
While we know with absolute certainty what the market is doing now, we have little or no idea what the following years really hold. With the world printing money and house prices rocketing, borrowing increasing and yet countries still crippled with Covid, can this buoyant economic environment really be sustained?
The other factor that seems to be ignored is the supply side. Currently, we have too few businesses for sale and this is in large part driving value. But what happens in the next couple of years when more businesses bounce back from their Covid woes and more owners decide to retire? We are anticipating a large increase in supply, which will of course affect prices achieved.
It’s hard to create wealth. If you have built a profitable business and are considering selling, lock in that capital gain now. There is no tax on this yet. And as far as ”what will I do if I sell?”, there answers are spectacularly diverse depending on how much you sell for. But retirement is no longer an aspiration for most people, so invest some and perhaps buy or start another business and enjoy the ride again.
When you sell anything, you want to sell at the top of the market. Luckily for you, that is right now.
