Selling A Business
Is It Bad to Sell Your Business During a Downturn?
Many economic pundits are predicting that the U.S. economy will soon be entering an economic recession, or at least a slowdown of some sort. They point to slows in consumer spending and other market indicators to prove that some challenging times may be ahead.
It’s tough to ignore the warnings, especially with these messages proliferating throughout the media. Many business owners have faced economic recessions before, and those who have come out the other end learned lessons along the way.
While economic slowdowns are often a time when the “everyday public” stops investing money, or at least holds more of it close to the vest, it doesn’t mean all businesses do poorly or that all investment money evaporates. That’s why it’s not necessarily true that selling your business during a downturn is a bad idea.
Here are five reasons why selling in a recession is not a sure-fire poor decision.
1. Not All Businesses Perform Poorly
Not all businesses and all industries perform poorly during or following an economic downturn. While the housing market took a huge hit in the “Great Recession” of 10 years ago, portions of the mortgage industry eventually did pretty well.
With mortgage rates at all-time lows following the crash, many mortgage companies benefitted from homeowners re-financing their loans to drop their payments. This was new business these companies didn’t have when mortgage rates hovered around 10% or higher.
Other industries that revolved around saving people money — such as energy-efficient appliances — also capitalized, taking advantage of government credits and tax incentives offered to homeowners who made purchases that protected the environment.
2. Recessions Don’t Last a Long Time
This is perhaps the most common myth of economic downturns — that they last what seems to be a lifetime. In reality, most recessions last less than two years. While consumers may become more frugal for longer than that out of fear, investors tend to take a longer-term approach to spending because they know this.
What this means is that when they look at the possibility of purchasing your business, they analyze whether they think it will perform well over the next five, 10, 15, 20 years instead of how it will do in the next one to two.
3. You Won’t Have to Deal with the Downturn
If you are ready to sell your business, chances are that you’ve come to the end of the ropes in regard to your appetite for big-time challenges, at least as it pertains to your company. Whether you’re ready to retire or take on a new challenge, it’s likely that if you’re selling your business, you’re ready to move on.
If you wait to sell your business until the economy rebounds from a recession, you’ll be forced to see it through what could be challenging times during the downturn. And if you’re not mentally prepared to hunker down and do that, you may be setting your company up for failure — and reducing the value of it in the meantime.
4. Recessions Are Often a Great Time to Invest
Those who are potential buyers for your business may subscribe to the adage that recessions are a good time to invest. This can be true because the price of investments is often lower during a recession than it is when the economy is booming.
As such, buyers may look to get in while the getting is good, as they say, and spend some money during a recession. Buyers may be looking to value your business lower during a recession than when times are good across the country, but that doesn’t necessarily mean you’ll be getting a bad price for the sale.
In fact, an economic downturn could provide the impetus for you and your potential buyers to reach common ground on a fair sales price for both sides.
5. A Recession May Not Even Affect Your Price
Finally, just because the country is in a recession doesn’t mean you’re going to get a low price for your business. As mentioned before, there are plenty of industries that thrive during a recession – for one reason or another.
Because of this, your business may actually be valued higher by potential buyers during a recession than after one. This could be especially true if your business is performing well during the recession.
If this is the case, then buyers may jump on your asking price now rather than taking the chance that it skyrockets when the recession ends.
These are just five examples of why selling a business during an economic recession is not a sure-fire bad idea. As always, every business owner’s situation is unique to them. Whether selling during a recession makes sense for you depends on your own particular situation, both in work and outside of it.
Sunbelt Business Brokers of West Palm Beach can help you prepare to sell your creative business in South Florida, guiding you from listing to closing. If you’re considering selling your business, get in touch with us today for a confidential, no obligation conversation.
