Should You Sell Your Business During a Recession?
Last week, a business owner asked me this question. Should you sell your business if the economy is heading into a recession?
His initial opinion was – no, of course not. After we talked a little longer the answer became, “let’s sell my business.” Here is why.
Should you sell your business during a recession?
The first thing I did was ask the business owner who called me a simple question.
Why did you call me?
The simple answer he gave was that he was thinking of selling his business but wanted advice on whether doing so when the economy appears to be going into a recession would be the wrong thing to do.
As a business broker in California, I don’t talk people in or out of doing anything. It’s their responsibility to make that decision. But I did ask what his motivation was for wanting to sell his business.
Reasons to Sell
This potential seller was tired and burned out and didn’t want to run his business anymore. His business had been very successful, and he’d owned it for 27 years. He owns a property in Mexico where he wants to spend more time.
Essentially he’d achieved all your personal and financial goals and it would seem like now was the right time for him to sell.
The Price “Problem”
He then asked, “won’t the price go down if the economy goes into a recession?”
While no one can predict the future, there are other factors to consider when it comes to the value of a business.
A business owner who is tired and burned out and no longer willing to spend the time and effort to market and grow the business results in the revenue of the business declining. This negatively impacts the value of his business. This is often something business owners do not think about. There are other factors as well.
- The industry they are in. Some industries do well, and therefore the businesses hold value even in a “rough” economy.
- The time a recession lasts. Typically, a recession will last from 6 to 16 months, but they usually last under two years. That means smart buyers are looking at the long term, and you can still sell your business.
So while business prices often decline during a recession, that is not always true, and an unmotivated owner will reduce revenue further and make the business worth even less.
Buyers During a Recession
If the economy goes into a recession will there be fewer buyers?
I explained to him, this probably wasn’t the case. Even during a deep recession like 2008 and 2009 it was hard finding buyers for businesses for sale because lending was restricted and business revenue was declining meaning business values were declining.
However, people still needed money to feed their families, pay their mortgage, put their kids through university and more. But there is another aspect to a recession that can be good for business sellers.
During a recession, employees lose their jobs because corporations start cutting their payroll. If an employee is worried about losing their job because their company is downsizing, their best alternative is to buy and own their own business and work for themselves, not another corporation.
While lending is more restrictive, there are financing alternatives, and these former employees are willing to do what it takes to get out of the corporate world. They are your business buyers.
If you own a business and have achieved your goals and are no longer willing to do the hard work it requires, it’s time to sell your business.
The Time is Right to Sell Your Business
We may be entering a recession. At the moment, no one seems sure, but as they typically occur every 7-10 years, most agree we are overdue for one. Even those who are sure we are having a recession agree it’s not going to be as long and deep as the Great Financial Recession of 2008 and 2009.
So, you can put off selling your business because you think we are heading into a recession and ride it out. You’ll probably keep waiting until you think the recession is over and it’s a better time to sell. That’s a lot of waiting and worrying about something you have absolutely zero control over.
What you can be sure about is that your business value will decline if you aren’t willing to work it as hard as you have been.
According to the California Association of Business Brokers, only about 25% of businesses sell. If you want to sell your business and get the best price and terms possible, do it while your business is performing strongly. Once your business revenue starts to decline it will be much harder to sell, recession or no recession.
If you have questions about the value of your business or the steps it takes to sell a business, send an email to firstname.lastname@example.org give me a call on (916) 570-2674.