Given the pandemic’s impact, more business owners will likely be selling their businesses in 2022 due to the uncertainty of the economy and tax increases. This year is a great time to sell a business due to high market demand and consumer spending.
As many business owners know, selling a business is no easy task. Many time-consuming steps go into selling a business. The sale of every business is unique but the fundamentals are similar. Business owners can take many steps to find the right deal. The more prepared the business owner, the more likely they are to maximize profits.
It is ideal to begin thinking about selling a business two years in advance. This allows the business owner to prepare the sale and command the best price possible. Selling a business for maximum profits depend on several factors, including the time of the sale.
Consider Supply and Demand
Over the past year, the strength of small business was tested, and business values have increased steadily due to increased demand. Since there is more demand for business, owners looking to sell can potentially sell for more in 2022. The timing of the sale is important in achieving the best outcome. The landscape set up by the pandemic and the recovering economy is setting up 2022 to be a great year for sellers.
Consider Labor Shortages
Labor shortages have hit multiple industries hard over the past year. Business owners can make plans to fill these shortages, but labor may be a key reason to consider selling a business in 2022. Some business owners will choose to wait out the current situation, while others will decide it is time to sell the business. Labor shortages take a major toll on businesses as many will close their doors until they can hire staff to fill empty positions. As a result, businesses lose income, and this can damage the overall profitability of the business when put on the market. Considering the overall loss in comparison of profit gained by a sale will help a business owner determine if now is the right time.
Consider Tax Consequences
Under the Biden administration, there is a possibility capital gains taxes will rise over the next couple of years. Reports show that a 39.6% capital gains bracket will apply to taxpayers earning more than $1 million. The indexing of this will allow for inflation in 2022. Most business owners will not feel this effect, but it may affect those earning more than $1 million. Even though Congress has not voted on any tax increases, it is a smart idea to consider future tax increases when selling a business.
Market Advantage for Sellers
With much pandemic uncertainty over the past couple of years, many business owners have chosen to wait when deciding to sell their business. This has caused an imbalance in the market. Buyer demand now exceeds the supply of available businesses. Sale prices can expect to continue increasing as buyers continue paying top dollar for these businesses. Currently, it is a seller’s market. This will slowly begin fading as the pandemic passes and more people are expecting to retire and sell their businesses. As this takes place, the market will begin balancing out to pre-pandemic conditions. So, if selling a business is on the table, 2022 is the perfect time to consider it.
For business owners looking to sell their business, 2022 is a promising year to do so. Businesses are selling at record prices, and buyer demand continues to rise, putting sellers in a position to negotiate with the many buyers looking to purchase a business. As the economy continues to recover, buyers will broaden their interests into different industries in re-opened sectors. Business owners considering selling need to contact a broker and see what their business is worth and begin the process of selling as soon as possible.
Brian Bond is the principal of Strategic Business Brokers Group, in affiliation with American Realty Brokers who has helped dozens of owners sell their businesses across Arizona. Bond has been named “Broker of the Year” by the Arizona Business Broker Association.
