Why Waiting to Sell Your Business Might Backfire, by Emily Maltby, from the WSJ
By EMILY MALTBY
Millions of small-business owners may be delaying retirement to their late 60s or 70s and beyond, in hopes of riding out the sluggish economy and a slump in the sales value of small businesses.
After all, what are a few more years on the job, especially if it allows a proprietor to open new lines of business, gain more customers, or possibly identify more prospective buyers for his or her firm?
Small-business reporter Sarah Needleman and entrepreneurship professor Andrew Zacharakis fielded reader questions on August 29. Replay the event.
But waiting for the market to recover could backfire, according to some who study small-business valuations. If and when the economy brightens, there could be a hefty backlog of retirement-age small-business owners eager to sell out, competing with newer sellers for the same group of buyers.
“If you continue to hold on another day, that’s another day where several more thousands of business owners turn 65. The market will be flooded for small businesses and the valuation will continue to trend down,” says John Warrillow, creator of the Sellability Score, an online tool to help business owners value their firms.
For those looking to sell their business at the highest possible price in order to retire comfortably, “I don’t think waiting is necessarily the answer,” he adds.
The first wave of baby boomers turned 65 last year, and the growing number that will reach that milestone in the next five to 10 years could compound the problem. “That will make the field enormously crowded,” says Steven D. Popell, an exit-strategy consultant in San Francisco. “The number of companies that will be up for sale in the next decade will increase dramatically.”
Selling a small business can be difficult even in robust economic times because its success often rides on personal relationships the owner has built with vendors and customers, says Andrew D. Keyt, executive director of the Family Business Center at Loyola University in Chicago. Buyers are more likely to bite “if the business has value without the owner in it,” Mr. Keyt says.
But the relative number of sellers and buyers may not affect a given company’s value as much as its assets, cash flow and net profits. “If you have strong fundamentals, there will be willing buyers out there,” Mr. Keyt adds.
It is also possible that a pent-up supply of buyers who have been waiting in the wings for better credit condition or more attractive choices could emerge to offset the pent-up supply of sellers. “Those who were wishing and dreaming of owning their own businesses but elected to stay put” will take action as the economy warms up, says Barry Evans, partner at Acquisition Services Group, a business brokerage in San Diego. “There will not be a shortage of buyers,” he adds.
In the first half of the year, 3,332 small businesses exchanged hands in the U.S., down 40% from the first half of 2008, according to BizBuySell.com, an online small-business marketplace.
—Sarah E. Needleman contributed to this article.
Write to Emily Maltby at firstname.lastname@example.org
A version of this article appeared August 30, 2012, on page B5 in the U.S. edition of The Wall Street Journal, with the headline: Waiting Won’t Guarantee A Higher Bid.