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Executive Impact - Forecast: What's to Come

The business-for-sale market has been seeing record growth in 2017, and the outlook in the first quarter of 2018 is just as strong. Bob House reports that in the third quarter of 2017 there were 2,589 small business transactions, a 24 percent increase over third quarter 2017. Year-to-date transactions for 2017 reached 7,491, promising a record-breaking year. This is a continuation over a two-year trend of quarter-over-quarter market growth. The pace of transactions can be tied to the strength of the current economy and changing regulations for small businesses.

Business owners are also driving much of the continued growth, with notable increases in cash flow, median revenue and related multiples over the same time period. Stronger financials equal higher valuations and higher asking prices. Sellers can ask for higher prices, allowing more room for negotiation.

Whether selling the assets of a company or shares of a company’s stock, the sale of a business is considered income, often classified as a “capital gain.” By law the owner pays taxes on it; however, the tax consequences and liabilities that owner will endure will depend on the type of sale which has been made with the buyer.

According to a recent report in Business News Daily, the purpose of the recently signed Tax Cuts and Jobs Act is to spur economic growth by adjusting tax structures for small businesses and corporations. Business entities will see positive changes in 2018, notably the drop in the corporate tax rate from 35 to 21 percent. This decrease will leave sellers with more money in their pockets after a sale, continuing to boost the economy with the prospect of further investments.

Financial results are not the only improvements the market is seeing. The median time to sell a business went from 171 days in third quarter 2016 to 146 days in third quarter 2017, a 14.6 percent decrease. This is an all-time low, showing that buyers and sellers are quickly agreeing on a purchase price and are committed to closing the deal.

The number of small business listings on the market increased 6.7 percent year-overyear. Buyers have many options as sellers take advantage of the active market. As the population continues to age, business owners looking towards retirement have a strong motivation to sell and cash out on their hard work rather than risk an uncertain future.

The short-term outlook for selling a business is positive as seen by the continuing yearover year growth. These trends should continue into the first quarter of 2018, so if you are thinking of selling a business, now is the time to act. THE FIRM

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