Timing is everything relative to business ownership or transition just like location is everything to real estate ownership. Timing and tenure for business ownership or selling (transition) for the highest sale price have to do with the economy, including interest rates and the cost of borrowing.
With interest rates rising, the economy is slowing with inflation racing in, while the value of assets decreases because investors and private buyers are facing dried-up financing to allow the rapid rate of acquisitions, mergers, and startups of the past. Even consolidators are seeing equity funds change focus.
Therefore, those that want to sell, need to do it very soon to prevent the continuing lower prices from having a big effect on any retirement and transition planning.
Private buyers need to buy quickly before the increasing interest rates force them out of the ability to pay category. Because even though eventually business sale prices will decline, there is a lag time while interest rates climb.
Some economists (Lisa Adkins, Melinda Cooper, and Martijn Konings in an article in the Atlantic) have termed our past economy “the asset economy”—in which prosperity is determined not by what you can earn, but by what you own. Because business values increase with low-interest rates and a booming economy, with high demand for products, and services and the fast rate of business mergers and business purchasing for consolidation.
But now with increasing interest rates, we are converting to an economy that requires wealth to be based on what you earn, while asset values decrease the rate of appreciation. So, to continue to prosper, it is about what you can earn rather than counting on business escalating values.
By delaying business transition, especially if there is going to be a sale to a corporation or business consolidator, the prices are falling, while the balloon of high demand has busted. But this may be good news to a private buyer that can now begin to get back in the acceptable sale price range.
Be sure to call the TPSG Broker in your area to sort out how the economy is playing a role in the current market of buying and selling Veterinary Practices.
Karl Salzsieder, DVM, JD, CVA
Total Practice Solutions, NW