Why sell your business in the middle of a recession?
You may believe that now isn’t a good time to sell your business and that you will have to put your retirement plans on hold. While this rationale makes sense for some, waiting for better economic times does not necessarily equate to a higher value when the business is eventually sold. There is no doubt that valuations are significantly lower than the heights of 2006 and 2007. If you could have sold your business for €2m in 2007 and can only sell it for €1.2m now are you really out of pocket by €800,000? If you’re retiring what would you have done with €2m in 2007? Put it into an investment fund stuffed with blue chip bank shares? Bought a rental property at the top of the market? What would your €2m be worth now in October 2009 and how liquid would it be if you need to access it? It would possibly be would be worth a lot less than the €1.2m you can get for your business right now and the funds you get now are not tied up in an unsaleable property.
The reality is, in many instances, that the purchasing power of what you can sell your business for now will exceed what you could have purchased with the funds received from a sale in 2007. Whether you believe that or not doesn’t actually matter. The valuations of 2006 and 2007 are gone, that boat has sailed and won’t be returning to port for many a long year. Your business, like every other asset in the market, is worth what someone will willingly pay for it today.
If your motivation for selling is retirement then one of the worst things you can do is to ‘hang on’ for another few years hoping 2007 valuations will return. Time and time again business owners do this and because you’re not as energetic and motivated as you were years ago the business can start retiring before you do. The ‘hang on’ strategy often results in lower sales, lower profit and a less valuable business. You can lose several years off your retirement and reduce your net worth at the same time. A real lose lose scenario.
Selling a profitable business during a recession is a viable strategy for owners who are ready to sell. Value is dynamic not static. Proper planning and preparation can make a big difference to the price a buyer will pay for your business. Quality sells in any economic environment and profitable businesses that are correctly valued and confidentially presented to the market are still in demand.
You might think there are fewer buyers in the market right now and you’d be correct as many struggle to get bank finance but paradoxically the ratio of financially qualified business buyers to active business sellers is actually quite high because many business owners are adopting a herd mentality and waiting for a ‘better time’ to sell.
Your business will most likely account for a significant portion of your personal net worth and depending on your own circumstances and motivation the best strategy may be to sell when the time is personally right for you rather than put your life on hold for several more years hoping for the ‘good times’ to return.
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