Question
I'm thinking of retiring in the next few years. How do I determine when exactly is the best time to sell my practice?
Answer
There are three types of timing to consider when planning for the sale of a business: personal timing, company timing, and market timing. Most owners tend to focus on personal timing, choosing a date based on their age and their retirement goals. Unfortunately, personal timing has zero impact on your ability to sell a company. Instead, your company's performance and the state of the market are the two most important timing factors to consider.
Ask yourself the following questions:
- Is your business growing?
- Do you have stable employees in place?
- Do you have a diverse and stable customer base?
If you can answer yes to these questions, your company is ready to be sold. But wait, you say, I've been working my whole life just to be able to say yes to all three questions. Why would I sell now? If you view these as ideal conditions, so will the person to whom you sell. A growing business with stable employees and a strong customer base provides very little risk to buyers, making them more willing to pay a premium for the business.
When considering market timing, ask yourself these questions:
- How are interest rates?
- What are capital gains tax rates?
- Are there buyers?
Coincidentally, today's current market conditions are very favorable. Interest rates are at historic lows, meaning buyers have access to cheap money with which to buy a practice. Interest can be a major drain on a company's cash flow, and lower interest rates enable buyers to pay higher prices.
Congress decided to extend the Bush tax cuts, ensuring low capital gains tax rates through December 2012. Another often overlooked factor in a practice sale is the impact on a seller's tax liability. In order to maximize value a seller must understand how much of the sale price he or she gets to keep.
Finally, the market has been flush with buyers for the last few years. Manufacturers and retail chains are seeking acquisition opportunities throughout the U.S. New, private equity-sponsored companies have also recently entered the market. Add that to the ever present opportunity to sell to an individual, and there have never been more opportunities for sellers.
Looking forward, buyers will be in the market for years to come. Interest and tax rates, however, are never guaranteed. An astute practice owner must contemplate all of these factors in determining the right time to sell.
