Will 2022 Be a Good Year For Selling A Business?
As many start to plan for next year, there are several important factors to consider for those owners looking to sell their business in 2022. While these past few years have been anything but normal, the following three key traditional factors in selling a business remain:
1. Multiples Determine Value
Whether it’s a multiple based on SDE or EBITDA for measuring cash flow, valuation multiples remain relatively the same compared to 2020 with one exception. In the recent Q3 of 2021, for businesses valued over $5M, EBITDA multiples increased from 5.8 in 2020 to 6.9 while those businesses under $5M remained relatively the same compared to 2020 Q3. Below is a quick reference to the average multiples for Q3 2021 (source: IBBA Q3 Executive Summary):
2. Keep Ownership Transition Options Open
In the past few months, our team has met with many different types of owners who are considering going to market to sell their business. Many indicate they are willing to stay on board in the transition for possibly 1-2 years. This is a desirable factor for potential buyers going into 2022. With current labor shortages at an all time high, finding and retaining employees has become crucial. Therefore, an owner willing to be flexible in the transition becomes an important factor. For the owner who has already successfully built themselves out of the daily operations, their business becomes even more attractive to potential acquirers.
3. Inflation and Tax Changes
There is really no way to avoid this topic with many business owners seeing dramatic increases in costs of goods and labor. While Congress is still working to pass many new tax laws, the implications are still unclear for business owners in 2022. This is not a problem that will go away soon. As in 2021, both inflation and proposed tax increases to small business owners, will be major drivers that a business owner should consider before selling.
While there are exceptions, most transactions take on average 9-10 months from the time the business hits the market to closing. Planning is critical in this process to ensure a transaction closes this next year. The majority of our business comes from referrals, and we look forward to hearing from you soon.
I hope you and your family have a great Christmas and Happy New Year!
Robert W. Amerine
Certified Business Intermediary (CBI)