A flat economy (one with little growth) may not seem too bad when compared to a recession (negative growth). But even a major downturn like that in 2008 (which was labelled the Great Recession) does not have to massively dent the value of a good business.
In fact many businesses have grown out of a recession, for example Groupon was launched in 2007 and grew rapidly throughout the Great Recession. The magazine Business Leader says it worked because it helped other businesses that were struggling to achieve sales in a recession. Your business may also be one that can thrive in a downturn.
Can I sell my business in a flat economy?
If you have a business that you are considering selling (check out our guide about preparing to sell), then don’t let a flat growth economy derail your plans. If you are ready for retirement and your exit plan means this is the best time to sell, then don’t let those preparations be sidelined by outside events.
According to Michelle Seiler Tucker, author of Exit Rich: The 6 P Method to Sell Your Business for a Huge Profit, some businesses have no problem selling in a recession.
She says, “Businesses are sellable during a recession, but it really depends upon the industry, your expectations, whether or not your business is operating on all 6 P’s, and how profitable the company is.
“Buyers are willing to pay top dollar for businesses that are profitable and generating strong cash flow, allowing them to recoup their initial investment sooner rather than later.
“Regardless if your industry was faltering during a recession, however, if your business is operating on all 6 cylinders, or 6 P’s you may still be able to maximise value during a recession as these are the characteristics all buyers look for in an acquisition.”
The 6 P’s, she says, are People, Product, Processes, Proprietary, Patrons, and Profits.
What to do as a prospective seller?
Predicting boom times is a bit like predicting next week’s weather: no matter what you think will happen, a sudden change of wind direction can mean your forecasts quickly become useless.
Therefore, the idea of waiting to sell until the current downturn is over no longer holds true. Whilst some sectors are doing better than others, businesses are either thriving or declining on the basis of their strength in their own market place.
Whilst many SME firms suffered a significant downturn when the economic crisis hit in 2008/2009, many of our prospective clients back then returned to or exceeded their performance prior to the Great Recession. This is particularly the case with our core market of precision engineering, IT and telecoms support and other B2B service businesses.
So, what this means for the prospective seller, is that the right time to sell is when the business owner is ready and the business is prepared and an attractive investment. It is largely independent of the state of the economy.
If your business has two to three years of strong but steady growth, a pipeline and plan for continued growth and in a strong sector such as engineering, IT and telecoms or other B2B services, there are many potential buyers eager to acquire businesses like yours.
What to do next
As you can see, waiting for better financial conditions could end up being a long wait if you have been planning on selling your business. The best course of action is to speak to one of our experts.
To find out more and to have a chat about selling your business, please make contact.