People often ask me if I am seeing a larger number of business sellers during the difficult economic climate for the green industry we are experiencing this year.
Many people expected there to be a flood of business sellers as a result of a variety of factors, including:
- Last year’s run-up in fuel prices,
- A corresponding increase in commodity prices
- A challenging labor force in light of attitudes toward immigration and a reduction in the number of workers available under the H1B guest worker program,
- Issues relating to the ability of businesses to obtain financing as a result of the credit crisis, and
- The impact of the disastrous fall-off in the construction industry leading to dramatic revenue declines for many landscape companies.
Many stronger companies stand ready to make acquisitions ion this environment, hoping to protect and expand their existing businesses by taking advantage of businesses for sale.
Surprisingly, there does not seem to be a flood of businesses on the market.
I often tell people contemplating acquisitions that the reasons that businesses are sold are frequently not directly related to the economy. They are often on the market due to “life events” such as death, disability, divorce, illness, a change in a spouse’s employment, etc. These situations are not conducive to delaying the process. Other reasons that owners choose to sell include retirement and “just being tired.” Those reasons are conducive to delaying until times improve.
One important consideration is that most small business owners are business owners because they want to be. They value the independence and little perks that come from being a business owner. It is often “in their blood” and something they do not give up quickly.
If an owner is considering selling his or her business, they have to consider what is next for them. In the current environment, they have first to consider what the after-tax proceeds from selling their business will be and what they will be able to with the funds after the sale. A $1 million purchase price may sound like a lot of money unless it turns into $600,000 or so after tax, depending on the seller’s tax situation. Then, if they are able to invest the proceeds to produce a 6% yield, they will have a whopping $36,000 per year to work with. And that is if they really can get a 6% yield. Not quite enough to move to the beach. On top of that the employment market continues to look pretty gloomy, so unless a seller has a clear idea of what they are going to do next, the idea of selling may look a lot scarier than toughing it out during a couple of down years for the business.
All that being said, I really do believe that many small business owners would do well to at least consider selling their business – but only if there is a clear strategy for what’s next. A strategy that combines the business with a larger, stronger one that offers economies of scale and post-deal employment can make a lot of sense. That kind of transaction can leave a business owner with both greater security and a career. In fact, in some cases, the selling business owner can wind up with greater job responsibilities ad earnings potential after the sale. Even then, it is a big decision to decide to sell your business.