I think it may be time to sell your business.Just last week it was reported:
In the first three months of this year, the number of sales (of businesses) that closed jumped 56 percent from the same time in 2012, according to BizBuySell.com, an online marketplace for small businesses. Retirement was the No. 1 contributor to business sales in the fourth quarter of last year and the first quarter of 2013, according to (another) survey by Pepperdine University and two trade groups, the International Business Brokers Association and M&A Source.
So, are you thinking of selling your business in the next few years? It seems like this is a trend very much worth considering. And that makes sense to me. Why? I can think of five really good reasons.
1. Our Aging Population.
According to the second chart listed on this page prepared by the Urban Institute (and as further evidenced by my knees, back and rapidly deteriorating eyesight), we aren't getting any younger. Sixteen-point-three percent of our population will be more than 65 years old by 2020, a 31 percent increase from 2000. And by 2040 one in five people in the U.S. will be an official senior citizen. This means that, assuming the system hasn't gone bankrupt, Angelina Jolie, Tiger Woods, Tobey Maguire and Kate Gosselin will all be able to collect social security that year (psst... can you guess which one in that group will actually need social security?). George Clooney will be 79 (and likely still single). Now think: Suppose you would like to sell your business someday. Will it be easier to do in the next few years or after 2020 when there will be many other gray-haired entrepreneurs also looking to sell out, retire and watch re-runs of Jeopardy? Many smart business owners I know are prepping for their exit (a topic for another day) sooner rather than later before a glut of metal shops, accounting firms and pizza shops started back in the good old days come up for sale.
2. Low Interest Rates.
This chart from last January shows a history of long term interest rates going all the way back to 1790. Now, I know it's kind of stretch to actually believe data from more than 200 years ago, but hey, global warming theorists seem to do that all the time. The author, Barry Ritholtz, is using these numbers to support his case that now has never been a better time for governments to borrow money and rebuild their infrastructure. And he's right. But these low interest rates also indicate that there has never been a better time to sell your business too. Why? Because, for investors, there's never been a better time to borrow money and buy appreciable assets... like your little business. How about getting a loan for next to nothing and using that money to buy a company or two that could, if managed properly, return double digit profits? If your company falls into that category then now is a great time to offer it up to a hungry buyer looking for an opportunity.
3. Low inflation.
Here we go again, with another crazy chart. But don't worry: this time we're only going back to the 1870's. I know, I know: back then they weren't even smart enough to have invented fro-yo so can we possibly rely on their calculation of interest rates, right? Fine, but just work with me on this. According to this analysis, our ten-year moving average of inflation has been 2.46 percent and our most current annualized inflation rate, according to the Bureau of Labor Statistics, is 1.47 percent. Only the Kansas City Royals' team batting average is lower. The rates are so low it's almost criminal to put money into a savings account. This is why investors are desperate to find places to park their money where they can still get a decent rate of return. Savings and money markets aren't going to cut it. The stock market is certainly a refuge (hence its "exuberant" rise over the past couple of years). But where else? Right! Your business! With borrowing rates so cheap and the options for making money elsewhere limited, how about investing in a nice little company like yours? It's a good pitch to make to a potential buyer I think you'd agree.
4. Low Taxes.
This chart shows a history of taxes on capital gains going back to the early 20th century. Our capital gains tax rates, as part of this year's effort to stave off the dreaded "fiscal cliff" were raised from 15 percent to 20 percent. But as you can see these rates are still significantly lower than what prevailed from between 1936 (40 percent) through the mid 1990's (28 percent). This means that if you sell your business now the tax rate on the capital gain you'll likely realize is at an historically low level. Now, turn to C-SPAN and watch what's going on in D.C. You'll be hearing a lot of talk about deficits and our national debt and how in the world will we pay this all back? And then you'll start hearing more rumblings about increasing the taxes (like capital gains) on those dirty, rotten, wealthy people again. Hey... that's you! And further increasing the tax on capital gains remains on Washington's agenda as just one of the many dastardly ways they're considering of cutting our deficits by attacking you dastardly wealthy people. With taxes at such relative low levels, what better time is it to consider selling out?
And finally, this is a photo of Honey Boo Boo. She stars in the enormously popular show called Here Comes Honey Boo Boo on TLC. The show features the seven-year-old child beauty pageant participant (her real name is Alana Thompson), along with her mom, dad and three older sisters.The show is mostly filmed in and around the family's hometown in rural McIntyre, Ga., which makes suburban Mumbai look like Park Avenue. According to some sources it has been reported that the family is paid a salary of $50,000 per episode. So if this isn't a clear indication that our country is absolutely going to hell and you better sell your business and move to Canada then I don't what is.
OK, let's compromise. There are 4.5 good reasons why you should consider selling your business sometime in the next few years. I know you may have emotional ties holding you back. It's your baby. You built it from scratch. You inherited it from your parents. But the smart business people I know look at their companies as nothing more than assets. I know this sounds a little cold, but it's just the truth. And anyone who knows anything about business knows that you buy low and sell high. And now just may be that selling-high time. Look: if Honey Boo Boo's family can make $50K an episode, shouldn't you be cashing in too?
A version of this blog previous appeared on Inc.com