2021 has been another unique and tough year. The pandemic’s challenges and opportunities have caused many of us to reconsider our professional and personal priorities as well as our lifestyle. In the last couple of years, millions of people switched industries and careers, discovered the joys of spending more time with family, or retired. Business owners are no different. Whether your business thrived or struggled during the pandemic, the last couple of years has caused many business owners to evaluate their future. Now that 2021 is over and you’re finalizing your 2021 financials, the start of a new fiscal year is the perfect time to consider a potential exit strategy and succession plan. Doing so will improve your chances of a smooth and successful departure once you decide to initiate that process.
Why 2022 is a Seller’s Market
With the dawning of the new year, many business owners will be planning to put their businesses on the market. There are several unique factors that make the beginning of 2022 a uniquely advantageous time to sell a business or diversify your personal wealth with a partial sale.
The End of the Pandemic is in Sight
First, prospective buyers are entering this year with a lot more confidence that the pandemic is finally winding down and the economy is continuing to recover. While Covid-19 and its variants are still a real concern and a public health threat, the chances of strict lockdowns that could shut businesses down for extended periods are increasingly slim. With vaccination rates continuing to climb, we are gradually entering into a new normal that provides much more stability and predictability for markets and potential buyers. Furthermore, consumer demand and spending remain high, making the overall economic outlook more hopeful than it’s been since the onset of the pandemic.
Historically Low Interest Rates
Interest rates for commercial loans are at or near all-time lows, and there are numerous alternative lending sources buyers can tap into. This opens the door to a much wider pool of prospective buyers who can access funding.
Investor Demand is High
There is a pent-up demand among buyers and investors to deploy their capital into businesses. During the pandemic, many of them moved their capital to the sidelines and adopted a “wait and see” strategy. Now, there’s a demand for opportunities to invest that capital in companies with strong growth potential in desirable sectors including infrastructure, construction, healthcare, pet-related companies, transportation, and many more.
Healthy & Profitable Businesses in Demand
Finally, whenever you’re selling a business, you have to ask yourself what type of businesses buyers are looking for. The answer: ones with close to $1MM in adjustable EBITDA and a team in place for growth. Businesses that survived the pandemic in healthy financial shape are in great demand, and there are fewer of them than there were pre-pandemic. A company with a strong management team with proven resiliency is very attractive to buyers because it gives them confidence that the business is well-positioned to adapt and effectively overcome future adversities.
Challenges of Owning and Maintaining a Business in 2022 and Beyond
The last few years have been a unique and uphill battle for most business owners. Some thrived during the pandemic because they adapted to the environment or were in an industry for which demand grew. Others struggled for the opposite reasons. However, in both cases, the challenges of owning a business have increase. It’s important to realize that 2022 will continue to throw up hurdles in the business world. There are clouds on the horizon that could change the calculus for both buyers and sellers.
Supply Chain Issues
First, there are constant supply chain disruptions. Problems with supply chains have created multiple barriers for businesses in 2021, and this could continue to be a problem in 2022 and beyond. Some businesses are more affected by this than others, but the supply chain is something to keep an eye on as we progress into 2022.
More Sellers than Buyers
Second, more business owners are realizing they need to monetize their businesses. The wave of retirements the pandemic has generated has affected business owners as well. Every day, another 10,000 Baby Boomers turn 65. Many of these Boomers are business owners looking to cash in on their hard work and success, which could create a glut of businesses for sale. So far, this hasn’t happened, as the market is still strong for sellers. This generation has always been focused on staying as youthful as possible and living life to the fullest, but the laws of time and chance dictate, that at some point, we’ll start to see a significant increase in businesses for sale as more and more Boomers retire.
Similarly, rampant labor shortages across the country have made running and staffing a business much more difficult. The increased labor costs associated with the shortages and the headache of trying to find qualified help have many owners looking toward the door themselves.
Potential for Higher Taxes
The potential for higher taxes is also a consideration. Since the Biden administration took office last January, there has been a concern that higher capital gains taxes will affect how much net proceeds an owner can retain after selling their business. Currently, the top capital gains rate is 23.8%, but some lawmakers have proposed an increase to as high as 40%. With 2022 being a midterm election year, large tax increases are less likely, but they’re still something to look out for in the near future
There’s no better time to start evaluating your business exit than today. Affinity Ventures is a Merger and Acquisitions company that has helped hundreds of business owners successfully sell their business or bring in investors for a partial sale. We have a massive database filled with thousands of buyers from all over the world who are looking for new business opportunities.
Affinity Ventures offers a free M&A marketing valuation to our clients, something our competitors often charge an upfront fee for. Whether you’re looking to cash in on your hard work or seeking an investor to expand, our skilled M&A team can find a buyer or investor for your business. Call 505-881-5352 to schedule a consultation with our M&A advisors and join the hundreds of business owners who have successfully collaborated with Affinity Ventures. Finally, please like and subscribe to our channel to get more great content on how to sell or expand your business.