13 Aug The Perfect Storm: Three Economic Indicators to watch for when Planning an Exit
It should come as no surprise that the economy can affect everything from the cost of a cup of coffee to the price of gas nationwide. Many successful business owners are adept at anticipating market fluctuations and planning accordingly in order to remain competitive, but those who are particularly savvy apply the same logic to planning an exit from their company. After all, the economy can also influence the sale price of a digitally native or online business just as much, if not more, than its goods and services.
The best time to sell a company is while business (and the economy) are booming, reading the financial metrics that indicate trends in the economy can be complicated. To help you better understand how to anticipate these trends, here are three economic factors to consider when planning an exit.
Gross Domestic Product – Gross Domestic Product (GDP) measures the total value of goods and services sold in a given period in a given country. Economists use historical data and present performance to project expected near-term growth, giving an indication of expansion or recession. A positive GDP forecast is a strong indicator of economic expansion, while a negative GDP forecast usually reflects declining performance.
A sustained period of economic expansion combined with high consumer confidence, a low unemployment rate, and a positive Small Business Optimism Index signals a healthy upward trend in the economy. This inspires confidence in prospective acquirers, as they consider it less risky to invest in many types of assets, including small businesses. Consequently, business pricing increases.
Interest Rates – Interest rates also factor into business equity pricing. A prospective acquirer will be willing to spend more money on a business if they are able to finance the deal at a low interest rate. If the rates for borrowing money increase, the opposite is true and business valuations tend to decrease, all else being equal.
Selling a business is a tremendous life event and one that must be considered carefully. As an entrepreneur, you have invested all your time and money into the success of your company, so there is likely a cutoff point below which an offer is considered too low to lead to a viable sale. Therefore, the right interest rate can make or break the deal.
Regional Economics – Small businesses are directly affected by their regional economies. For instance, if a company has its headquarters and conducts most of its sales in Nebraska, then the economic factors in Nebraska may be more significant than those at the national level. Prospective acquirers tend to shy away from businesses operating in tumultuous local economies, even despite positive national trends.
It is critical to keep abreast of developments in both the regional and national economy in order to find the perfect window to execute an exit plan.
The best time to sell your online, Amazon-based, or FBA business is while the business is doing well. Prospective acquirers love successful, innovative companies and the perfect time for them to buy is during a period of economic prosperity, when interest rates are low, businesses everywhere are thriving, and everyone is happy.
We published a White Paper covering several methods you can use to add value to your business today!
Building a successful exit strategy is all about planning and timing. Getting the house in order and growing the business with the long-term objective of completing a sale will make for a smoother transaction, while capitalizing on optimal economic conditions will allow you to earn the maximum value for your company.
Once the pieces are in place and you decide that right now is the right time for you to sell, it’s important to find an intermediary you can trust to help guide you through the sales process. There are a lot of options out there and the truth is that some are better than others. To help you choose the absolute best intermediary, we wrote a blog post about the two major types of intermediaries and the differences between them. You can find more information here.
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Global Wired Advisors is here to help you sell your Digitally Native or FBA business. We are Mergers and Acquisitions specialists with over 50 years of combined experience in selling online companies. Try our Free Value Estimation Tool to see what your business is worth.
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