Why Now Might Be the Time to Sell Your Business in Southern California
Thinking about selling your business? Now might be the time to take the leap. Business sales activity has been robust for a decade — but those statistics have shot up in the last two years.
The timing might seem counterintuitive after the tough environment of the past few years. Yet business sales activity at the end of 2021 outpaced pre-pandemic levels. And brokers expect sales to get even hotter, according to BizBuySell, which tracks small-business sales and listing prices.
Why sell now?
Several factors combine to make now a good time to consider selling.. Financing is readily available. Buyers and investors have more liquidity at their disposal. And the pandemic encouraged many people to reassess their lives. Some are leaving corporate jobs and, instead of taking a new position, pursuing their goal of entrepreneurship. Business brokers report that almost 1 in 4 inquiries are coming from people who are leaving the corporate world and looking to run their own business.
How to prepare your business sale
Before making a final decision about selling your business in Southern California, you may wish to consider these four steps:
1. Speak with your banker. Your banker should be a trusted advisor who knows you and has taken time throughout the relationship to understand your business goals and opportunities. They may be able to provide valuable insights before you list or close a deal. And your banker is likely to be involved in a business acquisition or sale, particularly if you’re selling debt along with the business. You’ll likely want to discuss with your banker how any credit facilities will be treated. Will the buyer assume the debt, or will it be paid off at closing? Your banker can also help assure any liens associated with credit facilities are released, if necessary.
2. Make a competitive marketing pitch. Telling the right story can demonstrate your competitive performance. Your banker may be able to recommend brokers who can present information in a way that is most useful to buyers— and most beneficial to you. In turn, buyers can review your sales package, understand the logic of the deal and share that information with their lenders to secure financing.
3. Ask the right price. Today, business valuation today is notably industry-dependent. You can get a sense of what the market might bear by reviewing BizBuySell Business-for-Sale Trends and Transaction Activity by region and sector. For example, during Q4 2021, 108 businesses sold in the San Diego-Carlsbad-San Marcos market, with closing prices that averaged a 0.94 revenue multiple and a 2.33 cash flow multiple. Your opportunities will vary depending on your business’s recent performance, your EBITDA (earnings before interest, taxes, depreciation and amortization) margin and other factors. It’s wise to do some homework before going to market.
4. Know that bank financing could be an option. For certain buyers and certain industries, banks are increasingly open to financing business sales. Your banker can discuss whether products such as SBA 7(a) loans could be an option for small business purchases. While these loans require collateral, companies may pledge tangible assets as collateral to take advantage of the 7(a)’s longer terms and lower interest rates. You may have access to other options, too, and it’s worth speaking with your banker about them.
Whether you’re just beginning to think about a sale or hiring a broker tomorrow, your banker can be a valuable member of your advisory team. Your relationship banker typically understands both your business and the current marketplace. Their experience can help you make a sale you’ll be proud of — and put your financial house in order for whatever comes next.
To learn more about how our bank can support you through a business sale, contact your Torrey Pines Bank relationship manager.