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Should I sell my business in a recession?

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Selling a business
By
Tom Butler
Tom Butler
Director
July 3, 2020
6
minute read

Deciding on the fate of your business during a downturn

If you are a business owner and you are considering selling your business, then our advice is that you should start straight away. The process for selling a business during a recession is the same as if you are selling in a boom period. The only difference is that the type of buyers may be different and the level of funding available for acquisitions may be less.

If you're considering selling your business, get in touch with Nash Advisory. Our years of expertise will help you arrive at the best possible result.

Why sell during a recession?

Quality businesses will always be highly desirable regardless of the state of the economy. Deciding to sell a business is a huge decision and one that must be made after careful consideration. If you have decided to sell, it is better to commit to a sale process than continue to run the business as normal. This is due to the fact that many owners will lack the enthusiasm to continue to grow and expand the business when they know they will sell the company soon. It is always better to get started as soon as possible.

How to improve your business before a sale

A well-run sale process takes between 6 and 8 months from start to finish. In the same way you renovate your property before selling it at auction, there are many things you can do as a business owner to prepare your business for sale. These can include things like:

  • Updating your website
  • Employing key people in key management positions
  • Updating systems
  • Having your financial accounts audited
  • Setting up a governance structure

All these things will enhance the value of the business in the eyes of potential buyers.

What sells during a recession?

building new website for business sale

All companies can be sold regardless of the industry — the key is really the quality of the business. Some industries will be more heavily impacted by COVID-19 compared to others. And although profitability is important, the main reason why some businesses still sell at a high value during a recession is the quality of the underlying business.

A quality business can normally be identified by the following:

  • Quality of the management team
  • Business model
  • Profit margins
  • Competitive advantage of the business
  • Cash generation ability
  • Whether the company is a price maker or price taker

Every potential buyer in the market will understand that COVID-19 has impacted business in different ways. The ability to articulate that impact to potential buyers is something that a good corporate advisor will be able to help you with.

COVID-19 and the impact on business earnings

The main impact of COVID-19 on most businesses will be on earnings. An assessment of the earnings impact needs to be applied industry-wide. Some competitors may have only seen a mild reduction in earnings because they were able to pivot into a new market quickly. In comparison, less agile businesses may see a significant loss of earnings, and they will be seen to be less robust and less valuable.

If a business is impacted less than others in the industry, then it is likely to be worth more in the long term. The key is to focus on the reason why business earnings either increased or decreased at the granular level compared to others in the industry.

The tourism industry has been one of the hardest hit. Despite this, many tourism businesses are still highly desirable in the market, even though some may not have any revenue until next year and will make a huge loss. The key is that potential buyers know that eventually COVID-19 will pass and tourists will return to spend money — the fundamentals of business remain the same.

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