While millions of small business owners have tucked the memories of 2009 into a distant corner, many others who have endured, and in some case prospered during the recent economic downturn, are looking to 2010 and asking “Is now the time to sell my business?” The answer is yes.

With the reinvigorated mindset of the market place and the recent announcement from the SBA about additional funding to support small business lending, it is increasingly clear that 2010 is an ideal time for business owners to sell.

The decision to sell, however, is a difficult one and is driven by a number of factors. Personal timing must be considered. Owner burn-out and a desire for change often influences the decision to sell - retirement, illness and a host of other issues can also be motivating factors. But these items should NOT be the only factors considered. Proper timing should also be considered in order to maximize the economic benefits of the sale. Although no one can advise a business owner as to the best personal time to sell their business, allowing personal issues to determine when to sell can only lower the value of a business.

Once you’ve eliminated any personal obstacles, you must then consider selling from a business standpoint. Unfortunately, few business owners decide to sell when everything is going great. However, this can be and most times is the best time to consider selling your business. It is important to recognize that this is the precise point in time that buyer interest will be at its peak and your premium price will be most achievable. On the other hand, if an owner attempts to sell their business after a period when revenue is off, after losing a key employee or losing a significant customer then the ability to sell becomes problematic at best. The best time for an owner to sell is when his or her business is efficiently staffed and growing. Businesses with these characteristics are very attractive, can be financed and are, therefore, saleable.

Now that we understand what motivates business owners to sell, what appeals to the marketplace and how timing can impact the value of one’s business during the sales process, we can now focus on why 2010 is an ideal time to sell.

Capital Gains Tax Rates Will Increase

This is an if but rather a when. Given the current state of the economy and circumstances at the national level, the federal government will need to raise additional revenue in order to finance the various governmental programs it enacted during 2009. Much of these revenues will be generated from an increase in the Capital Gains Tax rate legislated during 2010. Of concern is whether an increase in these rates will be retroactive – at a minimum it appears that effective January 2011 any taxable transaction will be subject to an increased capital gains rate. The new rate will be higher than the current rate which is approximately 15%.

The sale of a business is complicated and can require several months to finalize - some transactions require 8 to 12 months to complete. Delays can, therefore, be very costly - especially in light of an imminent tax rate increase. For example, a mere increase to 25% from the existing 15% capital gains rate could cost a business owner $100,000 per $1 million of their sales price should the sale of their business not becompleted prior to enactment of any legislation that raises the capital gains tax rate.

Buyers Are Available

There are many individuals who have been unable to survive widespread corporate downsizing. On the surface this group may not appear to be candidates to buy a business, but let us drill down a bit further. Most of the recently unemployed are members of the prolific baby boomer generation and have had the opportunity to save substantial sums of money. Much of this wealth is stored away in 401(k) plans and other savings programs that the IRS now allows one to tap into without paying taxes or penalty. These funds are available to buy a business.

Other buyers also exist. Many companies have been hoarding cash and are seeking opportunities to take advantage of this abundant level of acquisition capital. This, along with low interest rates, offers a very broad base of buyers who are seeking investment opportunities to take advantage of economies of scale and to gain market share.

Financing

Traditional financing avenues remain narrow but many SBA lenders continue to exhibit a healthy appetite for lending and, as recent statistics reveal, have provided millions of dollars for qualified buyers. SBA lending is likely to increase as the current administration undertakes previously announced efforts to increase funding for small businesses.

Mike Derrick is a Senior Business Intermediary with VR Huntington Business Group Inc. a VR Business Sales firm in Dallas (www.vrbigd.com).

VR Huntington Business Group is the leading business brokerage firm in North Texas and the Dallas/Fort Worth Metroplex. Our firm is comprised of professional business intermediaries that specialize in Business Brokerage, Mergers & Acquisitions, Business Valuation and Consulting services focusing on small businesses and mid-market companies.