Business owners are burned out, worn out, and past ready to get out. More than 1 in 4 business owners who put their business on the market this spring did so because of burnout according to the first-quarter survey of business brokers and M&A advisors conducted by IBBA and M&A Source.
Retirement continues to leads as the #1 reason business owners decide to sell their companies … consistent since the quarterly Market Pulse survey began in 2012. However, a dramatic jump in burnout appeared in Q1 2021 as the reason business owners decided to sell.
Also concerning, 15% of sellers had some kind of health issue driving them to market. This is higher than prior surveys and suggests the pandemic has taken a heavy toll on business owners’ health.
Business owners already deal with a lot of stress and pressure, from hiring qualified employees to managing cash flow. For many, the pandemic is the final nail for those who had financial struggles due to the pandemic as well as those who stayed operational through the pandemic worrying about employee safety, PPP versus unemployment, and retaining their talent.
In addition, to burnout and health reasons, 7% of sellers decided to go to market to get ahead of potential increases in capital gains tax. The Biden administration had indicated it was seeking significant increases in the capital gains tax rate.
If those tax plans come to fruition, the capital gains tax rate could effectively double, from 20% to 39.6% for income exceeding $1 million. Right now, that means business owners need to really focus on maximizing after-tax proceeds and timing, with total purchase price further down the line. This takes planning.
Even if a business owner is projecting 5% annual growth, they’d have to run their business another five years just to net out the same amount they could today after the proposed increased capital gains.
Unsurprisingly, business owners are saying, “Enough is enough.”
Don’t get burned out, worn out, and past ready to get out! Sell your company when you are ready…your planned decision.