A significant question a business owner may have during their ownership of a business is: “Should I sell my business during a recession?”
Unfortunately, this is not a simple question to answer. This depends a lot on your business, where you are located, the industry you are in, and the impact the pandemic and resulting economic fallout have had on your company.
Here are 11 questions you don’t want to miss if you are considering selling your business in California.
Your Company’s Financial Health
This is about your emergency funds and the amount of operational cash you have set aside for a rainy day. If you have sufficient working capital to survive a downturn, it can enable you not only to weather a disaster but also to thrive during this time.
Even if your business is an “essential” one (more on that in a moment), a company that is in good financial health is much easier to sell than one that is strapped for cash. To illustrate this, it was reported that before the historic Paycheck Protection Program, the average restaurant had only enough working capital to survive a fifteen-day closure.
The same was true of several other businesses and households as well. If a company were deemed non-essential and lacked government help, bankruptcy seemed inevitable. It also meant that while some loans are forgivable, in many instances, businesses that survive will do so further in debt.
This has a direct impact on whether you should sell your business or not.
Your Business Valuation and the Pandemic
Selling a business begins with a business valuation, and many business owners immediately ask what impact the pandemic and a global recession will have on their business value. The answer is complex and involves many factors to consider.
Therefore, if your business provides a necessary service and is deemed essential, its business valuation may increase. This is especially true if your business is busier at this time, and business may increase as a result. Those who manufacture goods in California are a good example of this.
A business valuation will guide your next steps and help you discover bottlenecks to achieving your business goals.
Financing for the Buyer
We often discuss finding a qualified Buyer, and one of the primary requirements is that they either have the necessary funds to purchase your business or the ability to secure financing. But how does a recession affect that ability?
On the positive side, interest rates are historically low, making credit more accessible to qualified buyers. If your potential Buyer wants to capitalize on this, though, they need to start the process as soon as possible. Securing financing takes time, along with other factors associated with buying a business.
Recession-Proof Industries?
Realistically, it is unlikely to guarantee this, but specific industries are likely to fare better than others. Since businesses have been affected pretty universally and globally, that means people will have less disposable income to spend for a while. Those businesses that survive may need to get creative and expand their offerings.
On the other hand, businesses that do survive are likely a good investment, as they have managed to navigate one of the worst downturns in recent history. That means that when your business succeeds, investors will view it as a good potential investment.
Selling Now vs. Waiting
The answer to this now is the same as it ever was. It takes time to sell a business, so if you don’t see yourself still running your company in two years, you should start planning your exit now. It takes 8-12 months for a company to sell at the best of times, simply due to the due diligence and other steps required.
That means you don’t know what things will look like at the end of that time. Your goal is to continue running your business as normally as possible until it sells, regardless of what’s happening in the world. Also, remember that irrespective of the circumstances at the time, a financially healthier business is easier to sell.
Being a business owner can be challenging at the best of times. It may be that you want to sell because making a recovery on your own will be a daunting task. Or you may want to sell because your business is thriving despite the recession.
You may have other, more conventional reasons for selling, such as retirement or a desire to transition into another industry. Please understand that now may be as good a time to sell as any other; however, the decision will ultimately be yours to make.
The decision to sell a business is a personal one, and this is especially true during a recession.
Do you have questions or need help with a business valuation to inform your decision? Contact us today at Rogerson Business Services. We’re here to help, and we’d love to be your business broker whenever you are ready to sell your California business.
Take a look at this list of businesses that Rogerson Business Services has previously sold. We can also assist you in selling your business.
Andrew Rogerson is a certified business broker based in Sacramento, California. Call Toll-Free at (844) 414-9700. If you prefer, email him at support@rogersonbusinessservices.com. Andrew services the whole state of California.