There are many factors that determine best timing for selling a small business -- the financial condition of the company, valuation, growth cycle, profit history, and the current market.

Value is dynamic and proper timing makes a big difference in the prices paid for business acquisitions. External factors such as the economy, the mergers-and-acquisitions marketplace, industry trends, competition, stock market volatility, investor confidence, interest rates, and geopolitical considerations are cycles of constant change that impact value.

Internal conditions within a company also change. Often in combination with external factors, sometimes independent of those factors. Changes do, and will, occur and they always tend to impact business value -- sometimes eroding value and sometimes increasing value.

So how should you start thinking objectively about the best time to sell?

A good visual of right-timing would be to imagine the life of your business plotted as a bell curve with the peak being the top of the growth cycle. The top is when you have reached the flat plane of growth...a sustaining mode. Buyers pay the best prices when they can't see the top, when the curve is still climbing upward. Once the top is visibly breached, buyers may pass on the opportunity or may pay prices based on a downward trend and higher risk factor. If you wait until your revenues are already sliding over to the downside of the bell curve, you have waited too long. Your business has already started to retire before you have. Buyers are not too interested in declining businesses. To get the best deal you have to sell on the way up -- not at the top or the downside -- and when the market and prices are good.

Markets change and fortunes change from year to year. The current status of the small business market place in Houston is hot. Buyers in every category are plentiful, our economic position is one of the top in the U.S., business policies are in place for continued prosperity and growth, interest rates are at historic lows, and capital is available for business acquisitions.

Fueling the market are the different categories of buyers looking to put their money to work. For example, a variety of people in the Individual Buyer Category are:
  • early baby-boomer corporate retirees
  • corporate refugees who have suffered a downsize
  • foreign buyers seeing U.S. businesses as investment opportunities while the dollar is still valued lower against their own currency
  • 30-something-up-and-comers aggressively buying and building
Strategic Buyers, both public and privately-held companies, are actively acquiring smaller firms as part of their strategy for growth and innovation and Investment Buyers, such as private equity groups, are seeking add-on acquisitions for their investment portfolios.

Every buyer category, individuals, strategic, and the investment buyers, are actively looking for opportunities to take part in Houston's prosperous future outlook. Each may vary in their acquisition criteria regarding the industry sectors and revenue ranges they are targeting, but we have seen one major common trend occurring. More and more private equity firms and corporations are looking for smaller businesses. These strategic and investment buyers, in increasing numbers, are considering businesses with lower minimum cash flow and total revenue generation as acquisition candidates than they were just one year ago.

We expect this trend to accelerate, especially in Houston, for ten specific reasons:

  1. While the national credit crunch may have impacted the larger transactions, the smaller transactions are still very active because all buyer categories for privately-held, small enterprises are looking to put their money to work.
  2. Houston banks have been minimally affected by the credit crises. First because of the area's relatively strong economy and second, because many banks have been spared major damage from the sub prime mortgage market because most of the banks focus on servicing small businesses (Houston Chronicle Dec 2007).
  3. According to Fortune 500 2008 list of annual rankings of America's largest corporations, Houston is called home by the second largest number of Fortune 500 companies, second only to New York City. Houston has been steadily adding to its collection of Fortune 500's for the past several years, while New York's number has declined. Houston stands well ahead at the #2 spot with Dallas, Chicago, and Atlanta lagging considerably behind.
  4. Houston is the best U.S. City for earning a living (Forbes, 08-18-08) and is recognized for its dynamic business environment, low unemployment and high wages relative to income. "And it's not likely to change anytime soon," says Forbes. Houston's pro-growth, no nonsense politics are major factors driving developers and other capitalistic-minded investors to Houston. Business experts and economists say it's a matter of simple economics — low taxes, affordable land and an expanding labor force.
  5. Houston is one of America's top ten recession proof cities, according to Forbes' article, America's Recession-Proof Cities, released April 29, 2008.
  6. Texas’ business climate is ranked best in the nation for the fourth consecutive time according to a survey conducted by Development Counsellors International (DCI). The survey measures CEO’s perception of a state’s business climate based on several economic variables. Business leaders throughout the world recognize the Lone Star State as a place where their business can grow and thrive thanks to its reasonable regulations, low taxes, fair legal environment, educated workforce and an unparalleled quality of life.
  7. Overall, the Texas economy continues to grow at nearly three times the national average. CNBC recently named Texas America’s Top State for Business and overall best economy. Texas was also recently recognized by CEO magazine as the Best State to do Business for the third year in a row.
  8. Last year, more than half of all new jobs created in the United States were created in Texas, with Houston leading the way.
  9. Houston's future outlook is predicted to flourish. The city is uniquely situated and ready to capitalize on the longstanding megatrends that are transforming the global economy (Newsweek June 2008, "Houston, We Have No Problems").
  10. Houston is headed toward becoming not only the leading city of Texas and the South, but also a player on the global scene: it is emerging as one of the world’s great cities. (Joel Kotkin, an internationally-recognized authority on global, economic, political and social trends, in his April 2008 article, Lone Star Rising).
Most importantly, buyers exceed sellers and we have a robust exit market for now. The time will come when the flood of baby-boomer business owners ready to sell will outweigh the ready buyers, and acquisition appetites and prices will fall. It will shift to a buyer's market rather than the seller's market that exits today.

The time is right when the external and internal conditions are right...when the market, the buyers, and values are good and financing terms are favorable. It's that simple. If you turn down a great market, when buyers are willing to pay a great price, or if you wait too long, the market cycle or your business' internal conditions will likely have changed. The Market is ready and it is never wrong. And, like time, it waits for no one.