How Current Market Conditions Affect Your Business Valuation
If you are thinking about selling your business, the economic environment around you matters -- not just to you, but to every buyer evaluating your business and every lender financing the deal.
Where we are today
Inflation has come down significantly from its 2022 peak and has stabilized closer to historical norms. That is good news for business owners going to market. When inflation was running at 7-8%, buyers were nervous about rising operating costs eroding the earnings they were acquiring. That pressure has eased. Businesses with stable or growing margins are showing up well in due diligence right now.
Interest rates are higher than they were during the 2020-2021 period, which affects how buyers finance acquisitions. SBA lending is still active and deal financing is available, but buyers are more disciplined about price than they were a few years ago. That means the quality of your financials -- clean books, consistent earnings, documented revenue -- matters more than ever. A well-prepared business still sells. A sloppy one gets discounted or passed on.
What this means for your valuation
Buyer demand for profitable small and lower middle market businesses in Southern California remains strong. Private equity, family offices, and individual buyers with SBA financing are all actively looking. The businesses that are commanding strong multiples right now share a few things in common: consistent Seller Discretionary Earnings or Adjusted EBITDA, over at least three years, a management team or operational structure that does not depend entirely on the owner, and clean financials that survive scrutiny.
If your earnings have been affected by cost increases over the last few years, that does not disqualify you from a strong sale -- but it does mean preparation matters. CBA's Predictive Market Analysis process is designed to identify those issues before buyers do, so they can be addressed or properly framed before you go to market.
Timing still matters
The right time to sell is not simply when the economy looks favorable -- it is when your business is performing well, you are mentally ready to transition, and you have given yourself enough runway to prepare properly. Rushing to market in response to economic conditions usually costs sellers money. Preparing 12 to 24 months in advance, with a clear strategy, consistently produces better outcomes.
If you are curious about what your business might be worth in today's market, CBA offers a complimentary and confidential value analysis. All we need are your last three years of profit and loss statements. Reach out today to get started.
If you’re considering selling now or soon, please reach out today.
Aaron Thom
President, California Business Advisors, Inc.