Selling Your Business: How are Current Valuations?

Jeff Thomas, CEO of Archetype Wealth Management, and Matt Gilbert, Principal of GAP Advisors, share how valuations are higher than they have ever been.

Jeff Thomas, CEO of Archetype Wealth Management, and Matt Gilbert, Principal of GAP Advisors, share how valuations are higher than they have ever been.

What's driving this? 

A low tax environment, return on investment (interest rates and money flow) and the quality of your business at the time that you go to sell are the driving factors behind the higher valuations. The first two things you can't control, but the quality of your business you can, so fix things that may be broken, make your business transparent and make it an easy business to transact with. If you have all of these items and you put a great team on it who understands what type of buyer is going to pay the most for your company, you will have a great sale.  

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HOW HAS COVID-19 IMPACTED THE BUYING COMMUNITY?

Most buyers are going in two different directions:

• Some are running to distressed assets, they are looking for a bargain-- something they can inject money into and nurse back to health over time and then flip.
  
  
• The other half of the community is running "flight to quality".   They want to buy something that has the opportunity to continue to be really great in the future and is setup to blossom under their management.

For the COVID-19 environment in the "flight to quality" community, those selling their business are going to get a "hall pass" for this COVID-19 performance period. A number of deals are going back to 2019 annual performance and setting the benchmark there for the valuation.

WHEN IT'S TIME TO SELL:

Your biggest bill when you sell your company is your bill to Uncle Sam.  The future tax environment will probably be much higher than the current environment, so you want to get out in such way that you pay the least amount of taxes.  You can do this by planning ahead with your team: whether that's a pre-tax period, a stock sale instead of an asset sale (which is taxed more favorably to the seller), or maneuvering your entity over the next couple of years.

FOCUS ON THE RIGHT THING:

Don't focus on the number you sell your company for, focus on the number you keep when the deal is all done. This involves the right planning and a tedious negotiation with your buyer.  There are assets in your business, there is cash, receivables, depreciation, all these things add up to what you get to keep and that's where you should direct your focus.