We’re all starting to feel the optimism of the coming year. Businesses are excited, profits are slowly creeping up, and buyers of businesses are out in full force. Everything is pointing to 2014 being a good year to sell your business or raise capital.
Yesterday, Axial’s CEO Peter Lehrman published an article in Entrepreneur talking about 2014 and examining a few of the big trends. We’ve pulled out a couple of quotes for you:
Stock market rise. The recent stock market rises may not seem to have a significant impact on small and medium business valuations, but the higher share prices make acquisitions easier. Corporate buyers often choose to acquire companies with stock rather than with cash, meaning higher stock prices actually cost the company a smaller percentage of ownership.
He then continued on, talking about how interest rates are low right now and could affect how much a buyer is willing to offer:
As interest rates rise, so does the price of capital — leading to lower valuations. Many buyers will be using loans to make their acquisitions. Because earnings are used to pay the interest on loans, interest rates greatly impact the multiple at which someone can afford to buy a business.
As any business owner who has tried to sell in the recent past will tell you, historical financials can have a massive impact on your valuation. That’s why this year is a good year to sell:
Three years of profit. It’s no secret that 2008 and 2009, and in some cases 2010, were difficult years for business owners because of the collateral damage associated with the financial crisis. Demand was dampened significantly for products and services across the board. But with the recession well in the rearview mirror, businesses have had the opportunity to recover and are in a position to show three or four years of solid growth again.