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

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When housing prices headed many homeowners refusedto sell, or at least strongly resistef selling, their houses for less than the values they perceivedx they were worth the year The result was that many houses were overpricedx and sat on the market for months before the ownerd either conceded to realityu by marking the prices down, or simply took their homese off the market. A similar mindset is occurrinv in many situations in which therr is a businessfor sale. Ownersx who may want to sell, but who are not beinyg forced to sell becauseof health, personapl or other forces, are resisting sellinv at lower multiples than their cohorts sold for in the relatively recent But is that rational?
If we look back threde or four years from now and pricesx have gone up, it may be. it may also provwe to be a bad decision. It’s extremelg difficult, at best, to accurately forecast where pricexs for publicly traded or privately held companies will be at any pointg inthe future. And they may go down even further. Many peoplwe forecast, but the key word is ”accurately.” It may be totallgy rational tosell now, even if priced are down. Earnings multiples that companies sell for in the markeyt at any specific point in time vary wideluy depending on macro factors such as trends in the currenyeconomic environment, technology changes, population growthj and geographic location.
Individual company such as product lines, management and employee qualitgy and company reputation may have major impactss on the value ofthe company. Regardles s of the specifics ofthe company, macroeconomi turmoil such as we’re goinf through right now will have a majot negative impact on the vast majority of A few may buck the trend, but not Let’s say you own a compan that has fallen in value in the past year from nine times earnings to six times earnings. That’a a 33 percent drop. If you have an offer to sell at six should youtake it? Therre is no definitive answer, because ultimately it depends on many personalp and business factors.
But what you can say is that, if you do you may not be anyworse off, and in you may be better off than if you had sold a year or two ago at a nine timesa multiple. Here’s why: Over the past two years or so, the pricese of many major items that affecyt our lives have dropped Although these numbers vary a little dayto day, here are a few Housing: Top 20 U.S. markets, down about 32 percentr from the peak; Florida, down more than 20 percenr fromthe peak; Miami, down aboutg 47 percent from the peak; down about 41 percent from the peak. Crude oil: down more than 55 perceny fromthe peak.
Gas at the down about 40 percent fromthe Commodities: corn, down about 45 percenrt from recent highs; steel, down more than 50 percengt from recent highs; broa index, down almost 50 percent from recent Mortgage rates, 30-year fixed: currently at 40-yead lows of less than 5 perceny annual rate. Stock prices: down about 40 percengt from the October2007 high. Sellers may not be able to get the same price for their businesses that they coulc two or threeyears ago. However, the prices of many of the majoe items that they will invesyt in or consume with that monet have fallen at least as much as the pricexs oftheir businesses.
Food, consumer goods and housing pricezs have fallen and are either stable or decliningveven more. Investments such as real estate and stockx have fallen significantly as On arelative basis, business ownerw may be no worse off and, in may be better off if they sell now in a broadlu depressed market. If an ownee wants to sell or has to sell for health or other reasons but waita until the value of thebusines recovers, he or she could be making a majof mistake. First, the value of the business may not recoverf for along time, if ever.
If the reasob for selling is, say, it may be too late Secondly, if the value of the businesx recovers, the value of all of the items shown above will surely riseas well, wiping out most or all of the advantager of waiting.