If You Are Considering Selling Your Business, Don’t Let a Bad Economy Stop You 

There is a rhythm and pattern ton life and to business.  The seasons and cycles of the plant world are generally well recognized.  In example, a plant sprouts, grows to maturity, flowers or produces fruit then withers and dies to decay and enrich the soil in support of the next cycle.   Businesses have their cycles also, but they need not die in order to benefit the next generation.   

The life cycle of a typical business begins with an idea or concept, the start up or grand opening, continuous fine tuning and adjustment until things seem to be running smoothly.  At this stage business is good and, albeit financially rewarding, not as exciting as previously.  Eventually, essentially all business owners come to the stage where the business begins to interfere with how they wish to live their lives and they begin to have thoughts of selling the business. 

Many never act upon these thoughts for countless reasons and as a result less than 25% of small businesses and franchises are ever sold.  This is indeed a tragic statistic but it gets worse in a down economy, not because of the economy – but rather because the decision was not made to sell at the time it was supposed to have been during the normal cycle. 

A Time to Grow and a Time to Go

Perhaps I can explain it this way.  There is a time to grow and if you are not focused on growth – it’s time to go.  There is no status quo. Either grow or go.  There comes a time in every business’ cycle when a business owner should make the decision to sell and sell to the entity that will take the enterprise to the next level. This time can be recognized as when the demands of the business begin to conflict with an owner’s desired lifestyle.  This optimum time or Window of Opportunity to sell at an optimum price does not last very long.  

When the decision to sell is postponed in favor of waiting out a bad economy, the window of opportunity will often close and business cycle’s end game begins and the business’ value begins to diminish.  This end game is not one designed or controlled by the owner but rather one enabled by the outside forces created by allowing a business to coast. 

When that window of opportunity passes we generally find the owner just going through the motions and allowing the business to coast or, more accurately stated, slide.  Decisions to invest in the business are postponed or rejected.  Eventually, and often, very quickly the slide accelerates with the end game no longer controlled by the owner.  Much of the value of the business has been dissipated.  At the end, either the business is “Sold” to a competitor (at the value of selected assets) or closed and the assets liquidated.  

A Down Economy Intensifies the Usual Seller’s Market

Selling more than 2,000 businesses through good times and bad over the last thirty years has taught us that good businesses can and do command premium prices in down economies and here’s why:

• Layoffs, company closings and down-sizing flood the marketplace with people wanting to buy businesses
• Pricing formulas do not change because of economies
• Most owners of good businesses postpone selling in a poor economy resulting in fewer opportunities for the increased number of buyers
• A business’s value is dependent upon its outlook for future profitability
• You can get tomorrow’s price today for your business if you choose a buyer who recognizes the opportunity your business represents and considers expectations of future profitability when assessing value.

In order to obtain an optimum price for a business, regardless of the economic condition, one must attract the type buyer who will recognize the opportunity the business represents.  In real estate, optimum value is determined by the entity that will recognize highest and best use of a property.  Business prices typically reflect an acquirer’s perception of future earnings under their ownership. Therefore, the optimum value of a business is determined by the buyer who recognizes the most opportunity the business represents.  A business can be considered worthless to one yet be worth millions to another.

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