When is it the right time to sell a Business in New York?

The middle-market business sector in New York is most definitely one of the largest in the entire country, and more than 10,000 businesses that earn between $10 million and $3 billion call the state home. This diverse group of businesses includes health care, finance, retail and more and comprises more than 1% of the firms based in New York but contributes nearly 20% of the revenue it earns.

The vast majority of middle-market businesses are privately owned, and these owners are frequently are left with the decision of whether they should sell their business or not. As of 2016, the value of mergers and acquisitions among middle-market businesses had declined to $297.3 billion from a peak of $324.3 billion in 2014. Despite the fewer cases of mergers and acquisitions, availability of buyers and funding for acquisitions has created a seller’s market.

In 2015, financial buyers raised $122 billion in addition to the $146 billion raised the previous year, and have since then been keen to generate returns for their investors. Strategic buyers – like large corporations – also have access to significant funds in their coffers. With the reduced chances of growth through M & A’s, many middle-market companies choose the path of acquisition as a way to grow.

Beyond the availability of funds, other reasons to sell a business include issues of estate planning, a need to try something different, inadequate succession planning by management, and pressures to gain liquidity.

There are also many factors in which a middle-market business owner might not wish to sell. As the US economy grows in strength, some might choose to let their business grow for a few years to sell at a much higher value. Also, not selling early gives the business owner the sole decision-making power to steer the business in the direction that he or she sees as the best fit. Rather than sell, owners may take on minority investors who can boost the company’s cash flow and value which will come in handy when the time to sell arises.

Should a business owner desire to sell their business, there are many factors to consider. Business buyers must consider more than the company’s cash flow and profits, and look at the total financial position of the company in terms of assets and past performance. Charting from the past to the future, businesses must show plans for growth and strategies to achieve that growth through organic methods, acquisitions or both. This is often a challenge for business owners who spend more time managing their businesses instead of staying on top of its financial reports, and they might do well to hire financial advisors to help fill that gap.

For owners, before deciding to sell the business, there are other factors to consider such as personal post-sale budgeting and cash-flow management. Collecting a big payment for the company also means losing the regular income the company once provided, and they will need to replace it to continue with their lifestyle. They will also have to consider the taxes applicable on the money they will be receiving. In addition, business sellers must consider the risk applicable to holding onto such payments and will need to decide how best to diversify their assets once payments have been received.

Regardless of the decline in M & A’s, there are still strong arguments for middle-market business owners in New York to sell. Financing is more accessible and buyers are equipped with funds. Sellers are also motivated to sell as the opportunities for liquidity and growth along with the challenges of succession planning compel them. Business owners must now decide if selling is in-line with their objectives, and if so, properly manage the sale and consequent transition.