It’s an understatement to say that 2020 was a disruptive year for businesses. Between the COVID pandemic, civil unrest, the presidential election, and the economy being flipped upside down, it’s natural for any small business owner to be worried about the future. Some small businesses are struggling to make any yearly profit, but there is hope on the horizon.
As stressful as 2020 was, 2021 offers hope. Vaccines are rolling out nationwide, and the economy is expected to roar back to pre-pandemic levels. Despite the pandemic, people are looking to expand and grow their businesses, whether it’s as an established business or a great new business idea.
Many people think that this is a bad time to sell, but the opposite is proving to be true. 2021 is shaping up to be a seller’s market, and you should consider taking advantage of these opportune market conditions if you have thought about selling your business.
According to Nick Fares of NEO Business Advisors, “It’s a seller’s market right now. If you’ve got a good business, it comes to market, it sells quick. You know, you’re getting higher than normal multiples because there’s such low inventory.”
Why are market conditions so favorable to sell a business moving into 2021?
When discussing his take on market conditions, Nick Fares said the following:
We’re not going out as a business broker. I’m not going out and looking for opportunities already out there on [the] market and shopped to every potential buyer. I’m drawing on a very curated network of referral sources, whether they’re attorneys, CPAs, accountants, commercial real estate agents, investment bankers, who are tapped into those businesses at a deeper level. [They] find out about an opportunity that may be somebody who’s ready to sell their business before they’ve ever made the decision to sell their business.
Whether it’s because of burnout, retirement, or health reasons, many people are ready to plan an exit strategy for ownership of their small business. Some reasons are more urgent than others, but if you’re ready to sell, there are many reasons people are ready to buy. There’s a general rise in optimism thanks to vaccines, the economy is beginning to recover, unemployment is falling, and low interest rates make it more tempting to borrow money.
So, what you have is a market where people are ready to buy, but not everyone is ready to sell. It’s basic supply and demand. Currently, there are a lot of buyers out there but few business owners feel comfortable selling in the current climate. That means that every business owner who is ready to sell a profitable company has less competition. Successful businesses stand out, especially now. After all, if your business thrived during a global pandemic, it’s going to stand out to buyers.
How to Maximize the Value of Your Business Before You Sell
If you’re ready to sell, consider the following:
- Has COVID-19 affected the value of your company? Many buyers might think that they don’t know how the pandemic affected your business and try to lowball you, but don’t accept an offer that isn’t what your business is worth. Yes, many businesses have suffered because of COVID, but many have flourished, and a buyer isn’t always going to have an accurate picture of what’s going on. Seek out an independent valuation so you can show the buyer just how much you’re worth.
- Are you emotionally ready to sell? Selling a business you built from the ground up is a difficult decision, and some people have a hard time deciding when it’s time to sell. For others, it’s pretty clear. If you’ve lost your passion for it or are daydreaming about new opportunities, it’s probably time to start thinking about an exit strategy.
Are you operationally ready to sell? Just because you’re emotionally ready doesn’t mean the business is ready. Preparing diligently is the best way to get the highest selling price possible. Go over your books to ensure that everything is updated and correct. Examine your inventory, supplies, and equipment and determine what is worth including in the sale and what is obsolete. Sell what you can. Finally, take a hard look at your business. Pretend you are a potential buyer. Are there any red flags? Do you see any weaknesses that you can correct before trying to sell?
What types of businesses are best to sell right now?
Some industries are thriving during the pandemic, and smart buyers are always on the lookout for a profitable business. If you own one of the following, you’re well-positioned to sell this year:
- Distribution companies
- Tech companies
- IT services
- Telehealth services
- Education support
- Delivery services
- Landscaping companies
- Home and garden centers
- Subscription food and drink companies
- Meal prep services
- Furniture stores
- Cleaning companies
- Beer distributors
- Drive-in theaters
- Fitness companies
- Game makers
- Game stores
- Grocery stores
- Home health care
- Liquor stores
How long will it take to sell a business in the current market?
People are so anxious to buy that there’s often a reason that business[es] don’t sell quickly. According to Fares, “If you’re looking at BizBuySell right now, you’re not [finding the best opportunities] because of the stuff that’s out there. It’s been picked over. If it’s still there, it’s sitting there for a reason… something’s wrong with it. Financials aren’t that strong or it’s priced to where they’re looking for a very specific, very strategic buyer.”
On average, it takes about six to ten months to sell a business, although some are going much faster than that.
If you have a profitable business and have been thinking about selling, now is the time to do so. Although 2020 turned the world on its head, 2021 feels a little more hopeful, and many people are looking forward to taking advantage of new business opportunities. If you have been thinking about an exit strategy for your business, the time to act is now.
To learn more about selling your business in 2021, reach out to Nick Fares and the team at NEO Business Advisors.