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Catching the Wave: Timing the Sale of Your Business in Unpredictable Economic Waters

Posted on: May 24, 2023
Business man looking at business data trends

Posted by Geoff Skadra

Imagine you’re a surfer. You’ve been bobbing in the water, scanning the horizon, waiting for the perfect wave. A few promising ones come your way, but you let them pass. You’re holding out for the big one, the wave that’ll let you ride all the way to the shore.

That’s kind of what selling your business can feel like.

There’s a school of thought in the business world that’s become something of a mantra: sell at the peak. But is it really that simple? John Warrilow, author of “The Art of Selling Your Business,” doesn’t think so. He suggests that the best time to sell your business isn’t necessarily when the economy is booming or when your profits are at an all-time high. Instead, he argues that the best time to sell is when someone is willing to buy, and you receive an offer. This is because, at that point, you’re in a position of strength1.

Surfs Up: The Advantages and Disadvantages of Selling High

The logic behind the “sell at the peak” mantra is that you’ll get a higher valuation for your business and possibly more interested buyers. But there’s a flip side to this coin. When the economy is doing well, there may also be more sellers on the market, meaning more competition.

Riding Out the Storm: The Ups and Downs of Selling Low

What about selling during a downturn or trough in the economy? Here, the buyer pool might be smaller, and the valuation of your business might be lower. But there could be a silver lining. With fewer businesses on the market, there’s less competition.

The Perfect Wave: M&A Strategy During a Recession

It might seem counterintuitive, but a recession can actually be a great time to consider a merger or acquisition (M&A) strategy. Research shows that companies that made significant acquisitions during the 2007-2009 global financial crisis outperformed those that did not. Companies that actively acquired other businesses had a higher total shareholder return compared to their less active counterparts23.

But why?

1. Discounted Prices: During a recession, business valuations often drop. This means that companies with liquidity can scoop up other businesses at a lower cost.

2.  A More Relaxed Regulatory Environment: In an effort to stimulate the economy and preserve jobs, governments and regulators often become more tolerant of larger acquisitions during a downturn.

3. A Strategic Use of Excess Cash: During recessions, companies often hold onto their cash. This could be an opportunity to use any excess cash to generate long-term shareholder value through strategic acquisitions4.

In conclusion, the decision to sell your business is a lot like catching a wave. It’s not about waiting for the peak or the trough, but about being ready to ride when the right wave comes along. And when it comes to M&A during a recession, there are definitely some exciting waves to catch. So, get your surfboard ready, because you never know when the perfect wave might come along.

Join Geoff for his webinar series: The Owner’s Metric: Running Your Business as an Asset and Find Your Freedom. Register here: https://www.focusfirst.co/webinar-registration 

Learn more about Geoff and his business at https://www.focusfirst.co/

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