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

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When housing prices heade south, many homeowners refused to sell, or at least strongly resistedd selling, their houses for less than the valuee they perceived they were worth the year The result was that many housexs were overpriced and sat on the markety for months before the owners either conceded to realit y by marking theprices down, or simpluy took their homes off the market. A similadr mindset is occurring in many situationw in which there is a businesszfor sale. Owners who may want to sell, but who are not beingb forced to sell becauseof health, personalp or other forces, are resistingb selling at lower multiples than their cohorts sold for in the relativelg recent past.
But is that rational? If we look back threw or four years from now and prices havegone up, it may be. it may also prov e to be a bad It’s extremely difficult, at best, to accuratelyh forecast where prices for publicly trader or privately held companies will be at any poiny inthe future. And they may go down even Manypeople forecast, but the key word is It may be totally rational to sell now, even if pricew are down. Earnings multiples that companies sell for in the market at any specifif point in time vary widelyy depending on macro factors such as trends in the current economic environment, technology changes, population growth and geographi c location.
Individual company characteristics, such as producyt lines, management and employew quality and company reputation may have majo r impacts on the value ofthe company. Regardless of the specificws ofthe company, macroeconomic turmoik such as we’re going througyh right now will have a major negativr impact on the vast majority of companies. A few may buck the but not many. Let’s say you own a company that has fallen in value in the past year from nine timesd earnings to sixtimesz earnings. That’s a 33 percent If you have an offer to sell atsix times, shoul you take it? Ther e is no definitive answer, because ultimately it depends on many personal and business factors.
But what you can say is if youdo sell, you may not be any worsr off, and in fact, you may be better off than if you had sold a year or two ago at a nine timea multiple. Here’s why: Over the past two yearse or so, the prices of many majo r items that affect our lives havedropped precipitously. Although these numbers vary a little dayto day, here are a few Housing: Top 20 U.S. markets, down abouft 32 percent from the peak; Florida, down more than 20 percent fromthe Miami, down about 47 percent from the Tampa: down about 41 percent from the peak. Crudse oil: down more than 55 percent from the Gas atthe pump: down abougt 40 percent from the peak.
Commodities: corn, down aboutt 45 percent from recent steel, down more than 50 percent fromrecenrt highs; broad index, down almost 50 percent from recent highs. Mortgage rates, 30-year fixed: currentlgy at 40-year lows of less than 5 percentrannual rate. Stock prices: down about 40 percen t from the October 2007 Sellers may not be able to get the same prices for theire businesses that they could two or threreyears ago. However, the prices of many of the majo r items that they will invest in or consumse with that money have fallen at least as much as the pricess oftheir businesses. Food, energy, consumer goodsd and housing prices have fallen and are either stable or declininheven more.
Investments such as real estatee and stocks have fallen significantluyas well. On a relative basis, business owners may be no worsoff and, in may be better off if they sell now in a broadlgy depressed market. If an owne wants to sell or has to sell for health or other reasons but waits untikl the value of thebusiness recovers, he or she could be makin a major mistake. First, the value of the business may not recovet for along time, if If the reason for selling is, say, it may be too late entirely. Secondly, if the valure of the business recovers, the value of all of the itemws shown above will surely riseas well, wiping out most or all of the advantag of waiting.