Selling a business now may make economic sense - Denver Business Journal:

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When housing prices headed south, many homeowners refused to or at least strongl yresisted selling, their houses for less than the values they perceived they were worth the year before. The result was that many housesa were overpriced and sat on the market for months befor the owners either conceded to reality by marking theprices down, or simply took their homes off the market. A similar mindsetf is occurring in many situations in whichh there is a businessfor sale. Owners who may want to but who are not being forced to sell becausseof health, personal or other are resisting selling at lower multiples than their cohorts sold for in the relativelyh recent past. But is that rational?
If we look back threw or four years from now and pricezs havegone up, it may be. However, it may also proved to be a bad decision. It’s extremelty difficult, at best, to accurately forecast wherre prices for publicly traded or privately held companies will be at any poin inthe future. And they may go down even Manypeople forecast, but the key word is It may be totally rational to sell now, even if pricees are down.
Earnings multiples that companies sell for in the market at any specific point in time vary widelyy depending on macro factors such as trends in the curreneconomic environment, technology changes, population growth and geographic Individual company characteristics, such as product lines, managementr and employee quality and company reputation may have major impacts on the value of the Regardless of the specifics of the company, macroeconomic turmoi such as we’re going through rightg now will have a major negative impac on the vast majority of companies. A few may buck the but not many.
Let’s say you own a compang that has fallen in values in the past year from nine time s earnings to sixtimes That’s a 33 percent drop. If you have an offerd to sell atsix times, should you take it? Therd is no definitive answer, becausse ultimately it depends on many personal and business But what you can say is that, if you do you may not be any worse off, and in fact, you may be bettefr off than if you had sold a year or two ago at a nine timex multiple. Here’s why: Over the past two years or so, the pricesx of many major items that affect our lives have dropped Although these numbers vary a little dayto day, here are a few Housing: Top 20 U.S.
markets, down abougt 32 percent from the Florida, down more than 20 percent fromthe Miami, down about 47 percent from the Tampa: down about 41 percent from the Crude oil: down more than 55 percentg from the peak. Gas at the pump: down about 40 percent from the peak. Commodities: down about 45 percent from recenty highs; steel, down more than 50 percenr fromrecent highs; broad index, down almostg 50 percent from recent highs. Mortgager rates, 30-year fixed: currently at 40-year lows of less than 5 percentgannual rate. Stock prices: down aboutf 40 percent from the Octobe2007 high. Sellers may not be able to get the same priced for their businesses that they coulsd two or threeyears ago.
the prices of many of the major itema that they will inves t in or consume with that moneyy have fallen at leasy as much as the prices oftheifr businesses. Food, energy, consumet goods and housing prices have fallemn and are either stable or declininhgeven more. Investments such as real estate and stocks have fallebn significantlyas well. On a relative basis, businesws owners may be no worseoff and, in fact, may be bettedr off if they sell now in a broadlhy depressed market.
If an owner wantsa to sell or has to sell for health or other reasons but waites until the value of thebusinesxs recovers, he or she could be making a major First, the value of the businessd may not recover for a long time, if ever. If the reasoj for selling is, say, health-related, it may be too late Secondly, if the value of the business the value of all of the itemxs shown above will surely rise as wiping out most or all of the advantageof