image from searchamelia.com
If you are an entreprenuer, one of the "big picture" business decisions on your plate is: When is a good time to sell the business? This question especially comes up for those who truly enjoy the excitement and risk of starting a business, but feel less fulfilled when running a mature business. Aside from that, if maximizing profit is a prime motivation, the major stockholder is always looking for a "good" time to sell.
Katherine Reynolds Lewis, in "Why Some Business Owners Think Now Is the Time to Sell," poses possible reasons why selling your small business in early 2012 might be a good idea. These reasons include:
1. The "Bush-Era tax cuts" will expire at the end of 2012.
In essence, the capital gains tax will return to 20%, up from its Bush-era level of 15%. Of course, Congress could extend the cuts, but by the time the national election occurs in 2012, it will be too late to plan a business sale, and Congress lately has been putting off all tax-related decisions to the last minute...or later.
2. Many small business owners who "missed the boat" before the economic turn-down are doing better this year.
Katherine Reynolds Lewis interviewed business owners who regretted not selling in 2008 after showing 3-5 years of solid growth. Several of these entrepreneurs reported that 2011 had shown sales growth, making it possible to consider a business sale--even if sales were not at the peaks experienced previously.
3. Businesses are being operated more efficiently.
Potential buyers will be looking at businesses that have "trimmed the fat" due to difficult economic times. Businesses now have well-trained employees, less interest costs, and have opened up additional revenue streams. An efficiently run business is less of an investment risk that a less well-run entity that may have existed before the downturn.
4. Even though banks aren't lending, other entities have money.
Let's face it, current interest rates are really in the basement. Any entity with cash to invest is looking for an opportunity to make a "reasonable" return on investment--other businesses, venture capitalists, and even private investors willing to fund someone with entrepreneurial skill who wants to jump from the corporate rat-race to business ownership.
5. Like the brokers in the fictional "Margin Call"...the small business owner may want to be the "first one off the boat."
A large population of small business owners are nearing retirement age--we are at the beginning of a 19 year curve of retiring Baby Boomers. A profit-minded owner would want to sell at one of the "high points" in this cycle, and there will be more buyers at the beginning of the cycle than there will be at the end of it. The strategy used by the brokers in "Margin Call" (who were at the center of the economic downfall) was to be the first entity to sell securities--before others realized their value had fallen. The analogy falls apart because the financial instruments in the movie did not have underlying value, and all viable small business do have real assets, real net worth, and real revenue streams. Nevertheless, the strategy to be among the first sellers is a good marketing strategy in many instances. [See my "Margin Call" blog from October 21, 2011]
image from intersect.org
Note: I also looked another blog referencing this article: "Are You Thinking of Selling Your Business in 2012?"
1. What is the name of a business owner interviewed by Katherine Reynolds Lewis who is thinking of selling this year? What is his or her business story, and why might 2012 be a good time to sell in this particular case?
2. What industries, in particular, have experienced sales growth that might cause them to think of selling in 2012?
3. Does the data influencing small business owners have any application for a small investor? Please give your opinion, and back it up with reasons or parameters gleaned from the article or other sources that you find and cite.