After another challenging year of dealing with a global pandemic, labor shortages, supply chain issues, capacity mandates and closures, many business owners are calling it quits in 2022 – but not for the reasons you may think. Despite the many hurdles business owners face, the primary reason they’re selling all or part of their businesses this year is because of the uniquely favorable market conditions they can currently capitalize on. A surging economy, low interest rates, the prospect of rising taxes, and potential buyers and private equity firms flush with post-pandemic cash have created a perfect environment for business owners looking to sell this year.
But let’s drill down into the above. Here are the top 4 reasons you should sell your business in 2022.
- It’s Still a Seller’s Market
A growing number of potential buyers who kept their capital on the sidelines during the pandemic are now ready to invest. This has created significant opportunities for business owners who are ready to sell. According to a recent industry report, while the pace of recovery has varied among companies and sectors, 2021 was a record-breaking year for Merger and Acquisition (M&A) deals across the U.S. In fact, according to PwC, the number of announced deals exceeded 62,000 globally in 2021, an unprecedented 24% increase from 2020.
Publicly disclosed deal values also reached all-time highs of over $5.1tn. The often-frenzied pace of M&A activity in 2021 was fueled by intense demand for technology, healthcare, and construction-driven assets, as well as the pent-up deal-making demand from 2020 that was unleashed. U.S. deal volume and value overall were up significantly in 2021, and 2022 deal volume is expected to keep pace with last year.
While demand among buyers continued to grow throughout the pandemic, supply remained relatively low. Many business owners were either adversely impacted by the pandemic and waiting to recover before selling, or their businesses thrived during the pandemic and they wanted to capitalize on the increased demand. Now that many owners have seen a resurgence in business value – due in part to pent-up consumer demand or the end of their pandemic business boom – they are ready to sell. This will eventually increase the supply of available businesses for investors, so now is the time to act.
- Potential for Higher Taxes
While the decision to sell all or part of a company should never be predicated on taxes alone, the potential for higher tax rates is a very real consideration, especially among business owners planning to retire in the near future.
President Biden was elected on a platform that included raising levies on capital gains and ordinary income for high-income taxpayers (individuals making $400,000 or more), which would help pay for the recently passed infrastructure bill and other related proposals. The Biden administration’s proposed top income tax rate would increase the present 37% rate to 39.6% and raise capital gains to match this level. The proposed 39.6% capital gains bracket would apply to taxpayers with earned income in excess of $1 million ($500,000 for married couples filing separately). While you may think this won’t affect you because your income may be less than this amount, a taxable event – like selling your business – could temporarily push your income over $1 million. This means you could potentially lose out on thousands of dollars because you picked the wrong time to sell.
- Inflation and Increased Costs
Even if your business thrived during the pandemic, the cost and difficulty of owning a business has undeniably increased. According to the NFIB Small Business Optimism Index, 22% of business owners rated inflation as their biggest concern, as it’s at its highest level since 1981. In fact, more small business owners started 2022 by raising prices in an attempt to pass on higher inventory, supplies, and labor costs. In addition to inflation issues, owners are also increasing compensation at record high rates to attract qualified employees to their open positions. In fact, 50% of owners reported raising wages in the last year – the biggest increase in 48 years! These costs are eating into profit margins and may eventually impact valuations in the future.
- Retirement
One factor impacting the current labor shortage is the wave of retirements among adults 55 and older that has been exacerbated by the pandemic. As the baby-boomer generation grows into their 60s, more and more people are reconsidering their lifestyle and employment. Business owners are no different. You’ve likely spent 3 to 4 decades of your life building, growing, and nurturing your business. Now, it’s time to rest. The fact is, selling your business can finance your retirement plans and future. Whether you intend to pay off your mortgage, move, buy a new house, start another business, or just cash in on your success, selling your business is likely the first step to the rest of your life.
Whether you’re thinking about selling your business this year or several years from now, prepare now by enlisting the guidance and advice of a qualified team of M&A advisors who can help ensure you get as much—or more—out of the business as you put into it. That will help ensure that when you’re ready to sell, you’ll get the highest possible return on your investment of time, energy, and capital.
How We Can Help
Affinity Ventures has helped hundreds of business owners exit on top and successfully sell all or part of their businesses. We offer potential clients complementary market valuations, something that might otherwise cost thousands. Our skilled team of Merger and Acquisition experts uses a database of thousands of potential investors to obtain multiple competitive offers from qualified buyers around the globe.
If you’re ready to move on to the next chapter of your life, we can help. Call 505-881-5352 or fill out the contact form below to set up your free consultation with a leading M&A expert today!