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Sell a business in a down economy?

Guest post by: Ted Burbank

Article Overview: Deciding to sell one's business is difficult enough in good times, a down economy only complicates the decision making process. If you've taken your foot off the gas you are not coasting but rather you're sliding, and your business is loosing value every day you wait. It's Grow or Go, there is no Status Quo. If you wait too long you may not have much left to sell.

Sell a business in a down economy?

Attention Small Business Owners

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.
Small Business Life Cycle









If you don’t sell when you are at or near the top of your game,
how far down the slope will you be when you do?
If you are in the window of opportunity and decide to put off selling until the economy improves, only to find that the value of your business has dramatically decreased.
How can you tell if it’s time for you to think about selling? We have developed a little quiz just for this purpose.
A One Minute Quiz
for Business Owners Only!
This One Minute Quiz will help you answer the most difficult question a business owner ever has to face. Count your Yes answers to the following questions to determine where you are in your business’s life cycle.
1. Is your business less enjoyable now than before? Y N
2. Does your business challenge and excite you less than earlier? Y N
3. Do you think of selling your business more often now than you did previously? Y N
4. Do you find yourself complaining more lately? Y N
5. Has the business come between you and your loved ones? Y N
6. Has your business begun to level off or decline? Y N
7. Are you concerned you no longer have the stamina your business requires? Y N
8. Do you wonder what you would do if you sold the business? Y N
9. Do you often wonder "What is my business worth?" Y N
10. Would you be hesitant to personally guarantee a sizable loan in order to grow your business? Y N
The Question: Should you begin preparing your succession plan or perhaps decide to sell your business?
Your number of Yes answers
0 -3 Yes
Congratulations! You are happy and probably quite prosperous in your business. Keep it up.
4-6 Yes
Pay attention to your "early warning" signals!" It is best not to make the mistake of staying too long! Go out on top. Sell while you are still having fun. Best to start the planning process early. The actual succession or sale process can take a long time.
7-10 Yes
Don't let time spoil the fruits of your labor. Most great men and women in history have had more than one career. It is time for you to decide that you want a change. Choose what you want to do next, and then act.
In Summary:
Business pricing methods remain unchanged even in a down economy; fewer good companies are on the market as their owners await an improved economy, the number of serious buyers in the marketplace increases in a down economy. There is a narrow window of opportunity between growing one’s business and the time for selling it. Sell while you are still having fun.

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  All economics is local
  3 Easy Steps to Sell More By Selling Less
  Competitive Advantage - Not What You Sell - How You Sell It!

Article Tags: business cycle, business cycles, down economy, exit strategy, grow a business, sell a business



Related Forum Posts
Service Or Product? - I'm doing an interview with CBC news this weekend about starting a business in a down economy. One of my recommendations will be to start a service based business instead of a product. My philosophy is to get to cash flow positive as soon as possible and running a service helps you keep your costs low (no production costs and very little overhead required). What do you think? What other advice would you give to someone who is just starting up in this economy?
Re: Service Or Product? - Service company always thrive in down economy. Let look at the advertising industies in any economy, you need to advertise your products or services even if you cannot afford any other things
Re: Plan Your Retirement NOW - Hi, Beat I must say the state of the economy has me worried these days. Not so much the state of it...but the knowledge that the politicians and people who are supposed to be in charge of the economy are so incompetent it's not even funny...
Re: When do entrepreneurs retire, if ever? - Why would you ever retire when you love what you are doing? Sell the business and start another one maybe - but retire - NEVER! You should all read, The 4 Hour Work Week - By Timothy Ferris. He talks about building your business so that you can take mini 'retirement's throughout your life, instead of saving it all up for when you are old. Great concept - what do you think??
Re: Service Or Product? - All things being equal Evan, I completely agree with you. A service would be much more manageable and predictable in a down turned economy. However, it is also important to recognize that the cost of goods also plummits during these bad times, and to amass stock or inventory for future sales could be part of capitalizing on this bad economy. Good luck with CBC!


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