Sell a Business Online in Downward Cycle?
What to do if you are a Seller in a downward cycle?
This is a great question. If a downturn does exist in the economy, you need to
ensure you will have enough cash-flow to withstand the wave,
since, many companies are not buying during these times.
Even though the purchase price will drop drastically,
this is still not an incentive in some cases to encourage buying of a business.
Sometimes, things will get bad in the economy where certain
industries will have no buyers, regardless of price.
When this downturn continues, the banking industry clams up to lending out any types of loans.
This halts even more purchasing behavior in a downturn market.
So, you can see the catch 22 in all this.
The good news is, that this is just a cycle. Some cycles can outlast
others depending on the political climate or other external affairs.
After the downturn cycle ends, the economy will slowly adjust for upward movement.
Companies will start hiring again, and the looking to purchase new
companies will be on the minds of these same board members again.
Ocean of Economics
As you can see, the cycle in this area, will continue and evolve again.
It is like the economic ocean, a constant flow and cycle of economic waves.
Of course, when good waves come in, the human behavior reacts
all over again, and the frenzy soon follows.
Like with most things in life, there are patterns, indicators and signals.
You just must be open and ready to receive them.
Of course, a little economy understanding, and background would not hurt.
Value My Business – Ways to value it!
There are many methods to valuing your business. One way is to
look at your company’s revenue or earnings.
This information can be used to compare similar companies in your industry for growth and market trends.
If you are doing better than your leading local competitors,
this comparable approach will work in your favor. It would use
your net profit in the valuation process of your company.
However, if you are showing a loss compared to other like companies,
then this will reduce the value of your business, on this level.
Having said that, therefore, we wanted to show you the market indicators
to watch out for so, you know when you’re in a fire hot market.
During this hot market phase, is when this valuation method is considered less frequently.
Good Times, More Spending
Remember what we shared to you about the good times, this is when
board members are telling their executives to buy everything.
Shareholders are hungry and need to be fed, plus it feels good on a human level to continue that frenzy up.
So, once all the good companies are bought up, meaning those same companies
on the comparable sheet you were just competing with, are now after your business.
It does not matter in most cases, that your company is marginal in comparison.
The whole goal during this expansion phase, is to buy as much as you can.
The mindset is, who knows if anything will be left to purchase for tomorrow so, you better buy today!
So, if you’re a seller, and you understand this mindset, and your looking to
sell your business, just wait until you get into a hot market.
The likelihood of your sale closing a lot smoother and faster,
for a much higher price is more promising and feasible.
Higher prices are the result of multiple expansions. This is because
the environment allows buyer transactions to accommodate multiples.
This only fuels the pressure to buy as much as you can.
The Discipline of Timing the M&A Cycle
If you are fortunate enough to sell your business during a hot market you are in luck.
Everything about selling your business during this peak growth period is wonderful for a seller.
The buyer will pay ridiculous fees and prices, and even ignore obvious risks
and exposures. This sounds like a golden ticket, wouldn’t you say.
Not only will you as the seller receive higher prices, but the legal terms and
conditions on the contract will be flexible and very accommodating.
A very different trend than if the market was blistering cold.
So, as you can see, timing is really everything. If you can hold off from selling until
you reach a hot point in the market, you will be better off in so many ways, it’s unbelievable.
So, the meaning to this story is, be patient and wait for a great Mergers and Acquisition Market.
This patience can be advantageous to your bottom line as a seller. If you
understand anything, it’s that there is a business cycle, with each cycle lies patterns.
All you must do is look for these patterns and dip right in when ready to sell.
Know when to Hold them, know when to Fold them
What a true statement and made famous in the country singing arena.
This same philosophy towards life applies to the stock market game as well.
For example, you might be feeling the great pleasures to your company when the
economy is in an upturn. Your company’s’ performance and profile will be looking very appealing.
Expansion in numbers will be the trend, and it will feel as though your making
more money now then if you were to sell your company.
This is where it can get tricky. No one can predict the future of the market.
You can look for patterns and indicators, but to say, in 6 months, 2 days and 1 hour,
the market is going to plummet and your thousand-dollar stock is worthless, is just not going to happen.
So, no matter how tempting the feeling is to hold onto the money express,
make sure you understand that there will be a down turn period.
Remember, there are cycles in this market switch so, you do not want to
miss the turn, or let emotions overshadow sound judgement.
Once you miss the turn, you miss the turn. It’s not like the needle is going to wait
until you make your final analysis of the market trends.
It just does not operate in that fashion, talk about being rigged.
Do Not Get Discouraged
Now, do not get discouraged if you are selling your business during a downturn market.
You will still have buyers interested in your business.
The only difference is, do not expect the prices to be as high as you originally planned for,
or to be as flexible when it comes to the contractual arrangement of the transaction.
Now, in many cases, both buyers and sellers understand that when a downturn occurs it can have devastatingly fast results.
For example, the economy back in 1999 to 2000 was overdue for this downturn climate.
The NASDAQ was showing outrageous high levels in the market, and there was complete madness by early March.
It was the ultimate buying and selling frenzy.
The Danger of Being Greedy
The word “greedy” with so many implications. Some good, mostly bad, but it is common
place in many areas of civilization, and of course the financial world.
Let’s face it, it exists everywhere during many different periods of time. You can see
greed back in the Pharos days, to present day rulers or people within our own circle behaving with such greed.
Well, this concept and behavior you guess it, exist in the financial market as well.
If you were to observe the NASDAQ market in 2000, you would have seen this transition
of how greed could overwhelm your financial future and security.
For example, in 1999, if you were selling your business, you would be doing just fine.
You would make an incredible deal, because at that time, everything was getting bought up.
Now, if you held on to your business because you saw all the positive sides of keeping it,
plus your thinking that your business is worth more if you hold on to it,
you would have been extremely upset in the year 2000.
This is because the market did a complete opposite, and now companies that were
valued at 8 million dollars in 1999, were now valued at 100 dollars in the year 2000.
You can see the dramatic fold in just months. This example was used for illustration purposes,
to show the dramatic effect the market took during this time.
So, you can see where greed can get you into trouble. It also, can make you take high stake risks with incredible payouts, if lucky.
If you see the market as an ocean with a continue flow of waves, you will learn
to read the patterns and to not take greedy risks, that could jeopardize the security and safety of your company’s future.
There are unreasonable expectations that can present themselves in any market.
This can occur on either side of the negotiating table, but in a downward turn market,
change happens quickly yet sellers are very slow to accept these changes.
You must know when to get out of the ocean during high tide.
Be Proactive for All Cases
We are providing you with extreme cases of course, because, you should be ready for anything.
Sometimes, being ready for the unforeseen, is time to take the biggest risks. It’s because you’re ready for it and not just reacting to it.
Now, explaining that to a seller, that their business or investment is no longer
at that stated value, and it might just be a 5-month period were talking about, is not the easiest job to do.
The reality of the market sometimes does not want to seep into the acceptability mode of the seller.
You can see where this could be a difficult process to accept. One minute your
looking at 9 million dollars in your bank account, and the next, it’s only valued
at 25 thousand dollars. This is an extreme example, but it still happens nonetheless.
So, now that reality has set in, the seller must accept the new deck of cards to play.
Therefore, market watch and gambling on high stakes may not be advisable to all.
You must have the mindset and bank account to endure these extreme emotional rides.
Or, you may secretly just enjoy the rush.
Whatever the case, if you are aware of the consequences and understand the risks, you’re ready to go.
So, let’s move onto to the next chapter.
Sell a Business Online – Financial Factors of Consideration
This phase comes into play when you have realized that instead of being just a prospect,
you know have decided to transition as a seller.
This is a great stage because now the meat and potatoes are laid out.
This is when the value and worth of the business are reviewed.
This review will incorporate the current market financial strength, and if you
did your homework correctly, you should be in a hot market zone.
Now, you have a ballpark number of what the value of your business is at.
You may need to have an appraiser and other valuation tools in place to provide a fair number.
Or in most cases, as you have already seen by example, a hot market can provide high returns on a seller’s price.
So, as you can see, a business value is subjective.
There is no concrete method of applying an absolute figure on the value of something.
This would not take into consideration all the different variants that make up this equation in the first place.
So, to ignore all outside components is a gamble beyond gamble,
and can leave you up in the greedy category, with nothing.