Risk Of Recession: Should I Sell My Business Now
Many economists are suggesting that the U.S. is heading towards an economic recession. BBVA projections indicate a 60% probability that a recession will begin in the next 24 months, and Deliotte points out that a slowdown is “increasingly likely.” As a business owner, a looming recession can be difficult and strenuous. Should you hunker down and try to weather the storm, or should you jump ship now before the going gets tough?
As with most complex business topics, the answer isn’t an easy one. There are several things to consider, and your ultimate decision could be based on situational circumstances. Let’s take a look at the pros and cons of selling your business during a recession.
Reasons to Sell:
First, it’s essential to ask yourself why you’re looking into selling your business. Is it just the looming recession, or is there more to it? Maybe you started your business with the initial goal of selling it, or maybe your growth has declined and money is tight. Oftentimes, people decide to sell their business when they’re tired of running it, nearing retirement age, or they’re excited about a new venture. All of these reasons, recession or not, are excellent reasons to consider selling, even in the face of an economic downturn.
It’s important to know your motives up front. If your options are to get out before it gets bad or stay in and fight, you better have some fight left in you. If you’re already thinking about cashing out, you definitely won’t have the bandwidth required to survive a recession.
However, if you’re purely looking at it from a financial point of view, there’s more to consider. Is your business recession-proof? Some industries like grocery, auto repair, and medical products can fare really well during a recession. Luxury products and non-necessity niches tend to struggle a bit more. So, if you fall into the latter category, selling now might be the right choice.
If you want to sell, the sooner the better. As the economy dips, it’s only natural that the price tag on your business will, too. So, if you’re hoping to cash out at your current company’s worth, then selling now could be a smart move. But if you think you can outlast the recession and have a good amount of cash on reserve, then you may see growth in the upswing and be ready to sell for more in five years or so.
Reasons Not to Sell:
If you’re in one of those recession-proof industries that we talked about, and you aren’t burnt out, then sticking it out is an excellent option — it will make you stand above many other businesses and may even position you to sell for more. Even if you are not sure there are several other reasons to push through the downturn.
For one, the economy has a reliable history of recovering. In fact, most recessions only last between 6-16 months. Even the most frightened economists will tell you that the recession is a temporary market condition. Additionally, downturns, slowdowns, and recessions are inevitable. So, if the economy dips, and your profits fall, they will pick up if you can weather the storm.
If your current profitability isn’t high right now, and you’re not sure if you should sell you might be better off waiting out the recession. Consider speaking with an exit planning advisor about how to reduce expenses and increase profit. Create a plan and work on preparing your business to sell once the economy is more stable. Invest your time in building value, which in turn will help you to build the type of business a buyer will be interested in buying.
There’s another interesting perk to not selling. During a recession, there are mass layoffs and a reliable loss of jobs. This unfortunate reality presents two opportunities for you, as a business owner. Firstly, you can scoop up qualified employees for less. Or, alternatively, some of these higher-level employees who are laid off tend to buy businesses instead of seeking other employment, so the market presents a whole new pool of potential buyers during a recession.
To Sell or Not to Sell?
The decision to sell depends entirely on your business and your goals. Take a good look at your company. What are the profits like today? Is your business growing? Do you have a business plan? Do you have enough cash flow to sustain the company for 6-16 months if sales drop? Be honest with yourself and ask the right questions. If you think your business can survive a recession then know that you don’t have to sell and you might come out stronger after the market bounces back. The recession, if it happens at all, will eventually end.
On the other hand, if you’re worried your business might suffer in a recession, or you’re already looking to sell, then you might consider selling your business now while there are still interested buyers. Additionally, if you don’t have any savings or if you’re already burnt out, it might be time to find a good business broker. And remember, if you’re already thinking of selling, then the sooner you do it, the better.
Whatever you do don’t make any rash decisions without talking to a professional advisor, like a financial planner or business advisor. If you plan to sell, you should definitely consider hiring a broker as opposed to trying to do it yourself. There’s no better time than right now to weigh your options, create a plan and make the decision that’s best for you.
Marla DiCarlo is an accomplished business consultant with more than 28 years of professional accounting experience. As co-owner and CEO of Raincatcher, she helps business owners learn how to sell a business so they can get paid the maximum value for their company.