When Should I Sell?
By Jason S. Thompson, CPA/ABV, ASA, CFE, CFF
Partner, Director of Valuation and Litigation Services
jthompson@sponselcpagroup.com

As valuation analysts, we frequently hear business owners ask, “When should I sell my company to get the most for it”? It is a good question and one that is often difficult to respond to with anything other than, “It depends!”

Timing the market is always difficult, especially over the past few years. As a result, many business owners have chosen to put the sale of their company on hold. A challenging economy, difficulty obtaining financing, finding an interested buyer and a number of other factors typically drive this decision. So how do you know where we are in the cycle at any given time?

Unfortunately, there may be few, if any, mechanisms you can rely upon to provide that indication. Several data sources for privately held company transactions (Mergerstat, PratsStats and others) accumulate their data annually and produce information comparing current market multiples to previous years. This data can be used to gauge whether we are on an upward or downward trend. Historical and forecasted economic data can also help paint a picture of good or bad expectations. Even trends in private equity and bank financing may provide some indication of trends being experienced at any point in time. Unfortunately, a lot of this data is driven by historical information and the hope that the future recovery or downward slide will look somewhat like ones of the past.

The privately held company transaction databases Sponsel CPA Group subscribes to indicate that market multiples for businesses sold ticked up in 2009 over prior-year data (2010 information was not yet available as of this article’s publication date). However, this uptick still falls below pre-recession levels. Many economists have indicated a flat or slightly improved economic outlook for 2011, and banks appear to be recovering from the woes of 2008 and 2009. Our experience, though, is that banks are taking a more conservative approach to deals today than they did just a few years back. These factors don’t necessarily provide a clear indication of where we are headed, but they do seem to indicate an improvement over recent years.

Everyone wants to sell at the top, to get the most they possibly can for their business. Whether or not now is that time, it is critically important to work with qualified advisors who can help you plan and implement strategies to move you toward your desired result. Approaching the sale of your business as an informed buyer puts you in a position to get the most you can for your business.

I welcome the opportunity to discuss with you the factors affecting your business’s present and future value. You can reach me or any member of the Sponsel CPA Group Valuation and Litigation Services team at (317) 608-6699.