This article originally appeared in The Tennessean.
There’s little room for modesty in Tennessee these days. It’s no secret that Nashville’s thriving economy and eclectic cultural scene have energized a similar narrative for the state at large.
National business media have heralded Tennessee as a top place for conducting commerce of all kinds. For starters, Nashville’s considered the third best city for starting a small business according to MSN Money and a top city in Forbes’ list for young entrepreneurs. Even more, Tennessee has been named economic development “State of the Year” for the second year in a row by Business Facilities.
And while the national conversation in the business press about Tennessee tends to center around this being a great place to start and grow businesses, the economic environment here is ripe for selling businesses, too, thanks to Tennessee’s statewide vibrancy and sustained evidence of a growing national economy.
Increased economic confidence
The buyers of businesses who all but disappeared during the recession are hungry to find strong companies in which to invest. Consider the years 2013 and 2014, which saw a 55 percent growth in transaction amounts, according to a BizBuySell report. The transactions themselves sold for higher median revenues, rising by three percent in 2014.
This optimism undergirds the strong seller’s market we are now experiencing. It means buyers are more willing to negotiate and deals are more likely to close, especially for sellers in the South. This time last year, more deals had closed in the South than in any other region in North or South America, as recorded by Deal Drivers Americas.
The Southern economy no longer relies strongly on agriculture. There’s economic revival and an embracing of new identities — and new industries. Cities like Nashville, Memphis and Chattanooga have emerged as tech hubs, while many rural towns have become manufacturing hubs.
Old and new Tennessee companies benefit from this Southern renaissance. With eyes already on the state, companies have a built-in advantage of attracting buyers from across the country. And with more buyers come more competitive offers for businesses.
Looming baby boomer exit
Americans born between 1946 and 1964, the baby boomers, founded more businesses than any other generation.
Nearly 4 million companies around the country are owned by baby boomers, including about 66 percent of all companies in the United States with employees, as evidenced by a United States census survey. In classic boomer style, owners’ exits from these companies will be far from discreet, as it will happen within a relatively short time period, which has already begun.
The mass exodus will be so widespread that it’s estimated that 65 to 75 percent of small companies in the United States will be put up for sale in the next five to 10 years. Simply put, with more supply entering the market, value will decrease as buyers have more opportunities. With this on the horizon, now is an opportune time to sell, before the market becomes overcrowded with eager sellers.
Impending tax increases
The federal funds rate has been at record lows since 2008, which has helped lower the interest rates for millions of businesses. But with the revitalized economy, the Federal Reserve has hinted that these exceptionally low rates are nearing their end.
In addition, the Obama administration’s 2016 budget calls for raising the top rate on capital gains from 23.8 percent to 28 percent. For any company, it’s important to consider the after-tax value of a business in current and higher tax scenarios.
More often than not, time is the No. 1 killer of deals. Making the decision to sell may never be black and white, but it’s important to understand the costs and benefits of selling or holding. For business owners with a sale on the horizon, remember that good times always come to an end. It is time to make hay while the sun shines.