NEW YORK - With the economy growing stronger, it might seem like a good time to try to sell your small business.
The market for small companies has indeed improved along with business conditions, according to business brokers interviewed by The Associated Press. But while there's an increasing number of prospective buyers looking for good companies, brokers aren't advocating that company owners be in rush to sell.
Fran Storer, managing partner of Fidelity Business Partners, a brokerage in Basking Ridge, N.J., said her business has been picking up since 2003, a year she described as "horrible" because of uncertainty over the impending war with Iraq. 2004 was what she called a very decent year, and "there's been a little bit of an uptick in activity since the beginning of the year" in 2005, she said.
"A lot of people are looking for service and distribution businesses," Storer said. "They're less interested in manufacturing, less interested in retail."
David Humphrey, president of Beacon Capital Group in Norwood, Mass., also sees an improvement.
"We're starting off this year stronger, with more quality listings than in the last five years," he said.
Moreover, Humphrey said he's seeing sellers getting not just higher prices, but also better terms when they sell their companies.
"They're getting more cash at closing," said Humphrey, who explained that in the late 1990s, sellers were getting less money up front and more promises of payment in the future. That's an iffy proposition that can bind owners to their companies even after a sale, with no guarantee they'll get all the money that's owed them.
The rising demand has definitely created a seller's market. Tom Kiernan, president of Kiernan & Associates in Tucson, Ariz., said "there's a scarcity of inventory, which means prices stay higher." He also has found buyers settling for less than their ideal company, simply because the market is tight and they want to buy a business.
But while it might sound like this is a great time to be selling, the brokers do advise caution. Humphrey said it's a good time for business owners contemplating retirement to put their companies on the market, but any other owners thinking that they'll make a killing on the sale of a business might not do as well as they expect, and might want to wait.
"If you're 62 and you plan on getting out in the next three years anyway, the number of buyers, lack of quality listings and strong financing puts together a combination where a seller could sell and receive a good price and excellent terms," he said.
But buyers, even if they're willing to pay the higher prices that a stronger economy commands, aren't overpaying as they did in the late '90s, when there was a lot of speculative money in the market, Humphrey said.
"Today it's well thought out, at least in the deals we're seeing," he said, adding that businesses are unlikely to bring premium prices that would allow younger owners to retire.
Buyers these days tend to be entrepreneurs and owners of other small companies, Humphrey said. But in Tucson, Kiernan said, many buyers are people who are coming out of retirement because they need more money to live on, or who have relocated to the Southwest from the Midwest and East Coast.
Any business owner contemplating a sale needs to take a careful look at the company and see what improvements - financial as well as physical - it needs to bring the highest price possible. Professionals like brokers and accountants can help assess a company's strengths and weaknesses.
If your business is lagging behind the rest of the economy, that's another reason to consider not putting it on the market right now. If you do try to sell, you might find yourself with a fire sale.
Storer said that during the bleak times of a few years ago, "I got a lot of calls from people who were really hurting. I told them to hang on till the economy got better."
"I would never encourage someone to sell in a trough," she said.