How to Sell Your Business During a Recession

Now May Be the Best Time to Sell Your Business

You’ve been through Alberta’s boom and bust cycle two or three times and you don’t want to rebuild again. At The Alberta Business Exchange, I’m hearing from business owners in a variety of industries who want to sell but are worried about selling during a recession.  Most of them come in believing they can’t sell right now.

Competition Is About to Get Stiff

Demographics tell us that within 10 years, 70% of all business owners will have passed retirement age!

We all know that when supply is higher than demand, prices go down. It is in your best interests to sell your business when there are fewer competing businesses on the market. At this point in time, buyers have started looking again but relatively few sellers are getting in on the game, creating a window of opportunity for anyone interested in exiting a business today.

Business Value is Not Necessarily Lower Today

You may think that because the cash flow in your business has dropped that the value of your business has dropped. It is true that 95 per cent of businesses are valued based on cash flow but that doesn’t mean a valuation during a recession will be that different from a valuation made during another period.

Businesses perform differently at different points of the business cycle. Value can—and should—be established by looking at how the business performs through the entire cycle, not just how it performs during a boom or during a bust. The only difference in selling when cash flow is lower, is that a more creative deal structure may be used.

Buyers, particularly strategic buyers, understand this. They also understand that many business owners don’t have this information, which allows buyers to get a better deal.

Selling Does Not Have to Mean Retirement

A couple in their mid-fifties has been talking to me for years about selling their $14-million business. One thing kept them from doing it: they didn’t know what they’d do if they weren’t working.  Last fall they were passengers in a floatplane when it crashed.  Fortunately they survived. But they realized that they could have been killed and started wondering what would have happened to the business.

I gave them my theory. With no management in place and their adult children not ready to take over, it was very likely that the business would have floundered and the $14 million lost to their children forever.

If you’re not ready to retire but want to make sure you get some of the equity you’ve worked so hard to create, selling half the business may be the perfect solution. Private equity groups love this type of arrangement because the owner, who has been successfully running the business, will continue to run it while the group recoups their initial investment. The owner is able to protect half the equity and the private equity group may groom someone to take over the business when you decide to retire.

Think Twice About Delaying Selling

It won’t be long before the market is saturated with businesses for sale. If your valuation is done properly you may still be able to get the price you want and even if you’re not ready to retire, you can sell half your business.

If you’re interested in learning more about selling your business during the recession and before the rest of the world decides to sell their businesses, call me at The Alberta Business Exchange today.