There are different reasons why business owners decide to build a business. Some do it for their family legacy. Some do it for the potential of a big cash out down the road. Some just build a business so they don’t have to work for the man, and get the business to generate enough income to support their lifestyle. Whatever may be the reason you start a business, the question will come up at some point on when the right time (if at all) will come to eventually sell your business. Here are some smart money moves thoughts on when may be a good time to sell your business.
- Historically low capital gain rates– Currently, we have long term capital gain rate of 15% on most items, especially if you are considering doing an asset sale of your business. It has been very uncertain where this rate will head in 2016 or 2017 with a new President, but 20% is really where the maximum rate stands currently (23.8% if you add in the excess Medicare tax). There is no telling where this will be in the future, so one consideration is where low capital gains rates are at the current time.
- It feels like a job– There is always a real excitement anytime you start a new business venture. Over time, the business may not necessarily be the panacea that it was when you started the business. If you can’t find good employees to run the day to day operations or your family doesn’t want to help lighten your load, the business can turn into a job as you grow in size. When you find yourself not having fun anymore, it may be a good sign that it is time to find out whether or not someone can pay you enough cash to walk away from the business.
- Borrowing rates are cheap– If you find a qualified buyer for your business, interest rates are still currently cheap for a seller to finance the business. Just like you saw with home values in the mid 2000’s, you make be able to eke out an extra $100,000 on the price of your business because the low financing rates won’t make borrower’s monthly payment substantially different. Remember, as interest rates continue to stay cheap, making mergers and acquisitions from sellers is going to be more attractive.
- Your industry is changing– As with any business, it is important to keep a close eye on industry trends and make sure you don’t get lost in a tidal wave of change. Perhaps the technology you developed is getting out of date. Or, there are regulatory changes to your industry that will inhibit future explosive growth. Sometimes, the peak time to sell your business is when you are attractive to another buyer as an integration or snap on piece to their business.
- Uncertainty of the cost of benefits– One of the big issues that continue to plague businesses is the overall cost of health care and benefits. Retaining employees in business is becoming more and more competitive, so you’ll need to consider how much benefits will eat into your future profit. If you continue to build the business, you’ll have to determine if your pricing and overall revenue can continue to sustain this growing expense line item in your profit and loss.
You should always consult a qualified business broker, financial advisor, CPA, and/or attorney before you sell your business
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