“Sell your business in a downturn? Are you crazy?”
This may the reaction that you get from friends and family if you are planning to sell your business in the current economic climate.
It’s not as bad as it appears
Downturn, recession, depression, slump – whatever you call it, there is no doubt that the world’s major economies have been suffering a tough time over the past few years, and there are those that would suggest that you would be better to wait until the storm blows over. However, figures from the UK’s Office for National Statistics show that last year, the value of UK company acquisitions was over £20 Billion – so even if the figures are lower than previous years, there is clearly still plenty of opportunity to sell your business in a downturn.
So if you find yourself in the position of wanting or needing to sell your business now, there’s no need to listen to those who think you’re crazy. You may even find that the process is easier than it would be during times of economic growth, because there’s less competition in the marketplace. It is still perfectly possible to sell your business in a downturn, while getting a fair value for all the hard work you’ve put in to make it grow over the years.
Four Steps on how to sell your business in a downturn
To maximise the return on your investment of all that money and sweat, it’s worth bearing in mind the following steps. Several of them apply to selling your business at any time, but in a downturn they become especially important as corporate finance is limited and asset values are generally depressed:
- Present your best face – Ensure that your business is as enticing a prospect as possible for a potential buyer. Of course, you always try to run a tight ship (right?) – but now is the time to take the opportunity to make it even tighter. Take a look over the company’s accounts and make sure everything’s up to date. Tidy up those ledgers, tax returns and bank account records so that any buyer can see what they are buying, and that there are no hidden surprises. Renew your leases, insurances and software licenses (and while you’re at it, why not see whether you can use the fact of the downturn to negotiate a better deal?) The better face you can present to the world, the more valuable your business will appear.
- Be flexible – In a downturn, there is no getting around the fact that there are fewer buyers and, unfortunately, there is less cash available. After all, that’s pretty much the definition of a recession. This is the time to be flexible about how the deal is done. You may find that there is someone who is willing to buy your business, but would rather make the purchase by means of a loan, or by offering shares in their business, or giving you assets such as buildings or land in return for your business. This may not be your favoured option, especially if your reason for selling your business in a downturn is to release much-needed cash. However, don’t dismiss the possibility without considering it carefully, because you may find that the assets you’re offered now end up appreciating in value as the economy recovers and business confidence returns to the market.
- Have a convincing business plan – Anybody buying a business in a downturn will recognise that they are taking on an element of risk, so you can calm their fears by taking a long, hard look at your own company, and developing a fresh business plan that shows how it can maximise profitability from this point forward. You probably developed a business plan when you first set up your business, so follow the same steps now to analyse your market, your competition, the prospects for future growth and ultimately, the value of your business to a buyer. Don’t forget that they will want to see a good return on their investment, so spend a little time and money on advice from your own lawyers, accountants and bank managers to make sure that your calculations represent a realistic prospect of profit for the buyer.
- Finally, consider whether your business actually has some benefits in a downturn. Some businesses actually do better when times are tough, such as those dealing with asset repossessions, or discount retail. If you happen to be operating in these markets (or could expand into them), then now is your time to shine! Make sure that buyers recognise the benefits of buying your business in this downturn – you may actually be a better prospect now than in the boom years.
Whatever your motivation, just remember that if you are selling a genuinely valuable business, an economic downturn need not be a barrier. Be prepared to be patient, as things may be slower than you would like, but if you follow the steps above, you can hang on to get the best deal for your business.
Joanna Miller helps business owners navigate their way through the start to finish process of selling a business. Her specialty is helping owners understand how to prepare and make the most of their business sale process to maximise their company’s value. To understand how you can sell your business quickly for the highest sales price, purchase her book, “How To Sell A Business: The #1 guide to maximising your company value and achieving a quick business sale”