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

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When housing prices headed south, many homeowners refused to sell, or at leastf strongly resisted selling, theifr houses for less than the values they perceivex they were worth the year The result was that many houses were overpriced and sat on the markett for months before the owners either conceded to realitg by marking thepricee down, or simply took their homes off the A similar mindset is occurringb in many situations in which therr is a business for sale. Owners who may want to but who are not being forced to sell becauserof health, personal or other forces, are resistinbg selling at lower multiplexs than their cohorts sold for in the relatively recent past. But is that rational?
If we look back three or four yearxs from now and prices havegone up, it may be. it may also prove to be a bad It’s extremely difficult, at best, to accurately forecast wherde prices for publicly traded or privatel y held companies will be at any point in the And they may go down even Manypeople forecast, but the key word is It may be totallgy rational to sell now, even if prices are down.
Earningws multiples that companies sell for in the markegt at any specific point in time vary widely dependin g on macro factors such as trendsx in the currenteconomic environment, technology population growth and geographic Individual company characteristics, such as product management and employee quality and companhy reputation may have major impacts on the valued of the company. Regardless of the specifics of the macroeconomic turmoil suchas we’re goin through right now will have a major negative impact on the vast majoritgy of companies. A few may buck the but not many.
Let’s say you own a company that has falle n in value in the past year from nine times earningsa to sixtimes earnings. That’es a 33 percent drop. If you have an offe to sell atsix times, should you take it? There is no definitiv e answer, because ultimately it depends on many personalk and business factors. But what you can say is if youdo sell, you may not be any worsd off, and in fact, you may be better off than if you had sold a year or two ago at a nine timesd multiple. Here’s why: Over the past two yeares or so, the prices of many majorr items that affect our lives havedroppefd precipitously.
Although these numbers vary a little dayto day, here are a few Housing: Top 20 U.S. down about 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 percent from the peak. Gas at the down about 40 percent fromthe Commodities: corn, down about 45 percent from recent highs; down more than 50 perceng from recent highs; broad index, down almosyt 50 percent from recent highs. Mortgage 30-year fixed: currently at 40-year lows of less than 5 percentannualp rate. Stock prices: down about 40 percent from the Octobe2007 high.
Sellers may not be able to get the same pricesw for their businesses that they could two or threeyearz ago. However, the prices of many of the majotr items that they will invest in or consumew with that money have fallen at least as much as the prices oftheir businesses. energy, consumer goods and housing prices have falle n and are either stable or decliningeven more. Investments such as real estatw and stocks have fallen significantlyas well. On a relativee basis, business owners may be no worseoff and, in may be better off if they sell now in a broadluy depressed market.
If an owner want to sell or has to sell for health or other reasons but waits untikl the value of thebusiness recovers, he or she coulc be making a major mistake. the value of the business may not recover for a long if ever. If the reason for selling is, say, it may be too late entirely. Secondly, if the valuee of the business recovers, the valuse of all of the items shown above will surelh riseas well, wiping out most or all of the advantagd of waiting.