Is 2011 the Year to Sell Your Business?

While we did see some positive signs last year that the recession may be nearing its end, 2010 still was slow to produce a significant boost in the economy, specifically the business-for-sale marketplace. One month into the new year, there may be signs that the industry finally kicks into full gear in 2011. Last year was especially strong for apparel store owners with solid operations who put their businesses on the market with reasonable pricing.  Many of these sellers found that there was a large buyer pool waiting for good opportunities to arise.

During these tough economic times, only the smart—or lucky—have been able to keep revenues up. But a good sign in 2010 was that many apparel businesses saw their cash flows increase slightly. In fact, oftentimes the bottom-line cash flow of many small businesses was healthier than their top-line sales.

Why the improvement? It seems that business owners have found ways to cut unnecessary expenses and become more efficient.  This may have included improving a lease term, negotiating down vendor prices, moving toward higher margin products and services, reducing non-vital expenses and creating an overall more efficient business plan. But certainly there still is a long way to go before companies experience the rejuvenation they are seeking. Pre-recession revenue and profit levels are still far off for most small businesses, but the worst appears to be behind us. Most experts are optimistic in what 2011 could bring and several factors show this could hold particularly true for the business-for-sale marketplace.

So what should we expect to see in 2011?

Increase in Buyers

We have seen a steady and increasing pool of buyers in the market for a business. Perhaps the most active buyers of small businesses this year were those looking to buy themselves a job. With larger companies eliminating many middle-to-senior level executives, a group of buyers with decent capital and a will to succeed emerged. These buyers realized that purchasing an existing apparel business with built-in revenues, clients and employees—while more capital-intensive than simply trying to find a new job—could provide the most concrete employment option.

Increase in Sellers

Many of the unemployed are looking to buy jobs, which often are owned by the enterprising baby-boomer population. Baby boomers control almost eight million small businesses in the U.S and many experts expect about half of this group to begin selling their businesses near the end of this decade. However, the recession created low market values for businesses, forcing many baby boomers to hang onto their businesses longer until they could command a better price. But that generation is rapidly approaching or at retirement age and baby boomers will have to sell at some point.  When that time comes, expect a huge shift in the balance of buyers and sellers in the apparel market. With a larger number of businesses available for sale, sellers will need to show exceptional results to beat out the competition for buyers.

More Lending Opportunities

In addition to more buyers and sellers on the market, there could also be more loans available. Based on current and anticipated behavior, banks are returning to the small business acquisition lending market. It has been a long time since bankers have contacted business brokers with the purpose of sourcing deals. But we’ve begun to see exactly that and as this continues, buyers  will have an easier time securing capital for a business purchase. While most of the deals we saw in 2010 were smaller in size, the trend bodes well for the year ahead. Apparel businesses with a strong cash flow should ultimately see more overall activity in terms of bank lending in 2011.

Higher Business Values

Companies with solid fundamentals should finally see their market values increase this year. As more buyers emerge and lending increases, it will be common for the top businesses to attract a bidding war amongst a large number of buyers. With this auction-type atmosphere, buyers will need to raise their offers and terms in order to win. This may sound counterintuitive given current market conditions, but it is basic supply and demand. There are still a lot of prospective buyers in the market—and they’ll all be chasing the small crop of healthy, desirable businesses. Thus, those business owners who have fought successfully through the recession will be the beneficiaries of a lopsided market.

Advisors in Need

Business owners understandably have been nervous about spending money for any service that may not produce a near-term return. But hiring good advisors — such as a business broker, lawyer and accountant — will pay off when the time comes to sell a business. Common mistakes such as holding onto a business too long, settling for below-market value or panicking into a bad contract can have a drastic effect on a seller’s future. Maximizing profits and business fundamentals will be at a premium as we emerge from the recession. Hiring these qualified experts allows owners to concentrate on keeping the business running smoothly while the advisors handle details of the sale.

Regardless of how 2011 plays out, one prediction will certainly hold true—apparel outfits that take the proper steps to prepare their business for sale will have a much better chance of achieving a successful exit than those that don't.

 

Domenic Rinaldi is president and managing partner of Chicagoland Sunbelt, a business brokerage firm that focuses on helping people buy, grow and sell businesses in Chicago and the surrounding Midwest area. Domenic holds the professional designation of Certified Business Intermediary (CBI) from the International Business Brokers Association and is considered an expert in the business brokerage field. He is a seasoned executive who brings more than 24 years of proven experience in merger/acquisition, sales, service, marketing and operations to the business brokerage arena.