This year may be a good year for many to sell a business . Here are some excellent points from a recent newsletter from the Association of Professional Merger and Acquisition Advisors :
Low Interest RatesInterest rates are at historic lows. Low interest rates mean that buyers can afford to pay more for a business. Whether it is a "sophisticated” buyer using discounted cash flow analysis, or someone calculating "how much can I afford a month” the same math holds true; lower interest rates mean lower debt service payments and higher cash flows from the business. Debt payment levels and cash flow drive value.
SBAThe Small Business Administration guarantees a portion of the loans that banks make. As part of the current stimulus package, the SBA has raised its loan guarantee level up to 90% for certain loans. At the same time, the SBA has eliminated the processing fees that borrowers normally have to pay. When buyers pay less for loans, they can pay more for the business. Low
Capital Tax Gains Rate
It is what you keep from a sale that really matters. At only 15%, capital gains tax rates are at the lowest levels in 30 years. Many people forget that in the late 70's the highest effective capital gains tax rate reached 49.875% and as recently as the early 1990's the highest capital gains tax rate was still at 29.2% . The current administration has already stated its desire to raise the capital gains tax rate so it is not a question of if but rather how much.
No one has a crystal ball, but what could happen if an owner waited until the economy starts to recover and things "improve” to pursue a sale... As the economy begins to grow, corporations start hiring again, pulling potential buyers off the market and hence reducing demand. With the economy growing, the Federal Reserve starts to worry about inflation and raises interest rates to curb growth (yes, this is what they do). The SBA incentives will have expired, increasing loan fees and reducing bank guarantee rates.
