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Should I Sell My Business In A Recession?

Garry Stephensen

Article Author: Garry Stephensen
Position: Managing Director
Read time: 5 mins

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For entrepreneurs and business proprietors pondering the prospect of divesting their Australian enterprises, a fundamental query arises: should you embark on this endeavor during a period of economic recession? This deliberation warrants an earnest exploration as the implications of such a decision can have far-reaching consequences. In the following discourse, we shall elucidate the intricacies of this dilemma, elucidating how sound strategic preparation and astute decision-making can yield favorable outcomes even in adverse economic climates.

As seen in the Financial Review and the Courier Mail.

Businesses That Are Easy To Sell In Recessions

Let's first consider what businesses tend to thrive during financial recessions. While no industry is entirely recession-proof, certain types of businesses can thrive or maintain stability in such challenging economic conditions. Here are 15 business models that tend to do well and therefore are easy to sell in recessions:

  1. Essential Goods and Services
    Businesses that provide essential goods and services like food, healthcare, utilities, and basic household necessities typically see stable demand during a recession. Grocery stores, healthcare providers, and utility companies fall into this category.

  2. Discount Retailers
    Discount stores and dollar stores often do well during recessions as consumers become more price-conscious and look for cost-effective shopping options.

  3. Healthcare and Pharmaceuticals
    Healthcare services and pharmaceutical companies usually experience sustained demand, as people prioritize their health during tough economic times.

  4. Repair and Maintenance Services
    People tend to postpone buying new items during a recession and opt to repair or maintain their existing belongings. Businesses in industries like auto repair, home maintenance, and appliance repair may see increased demand.

  5. Debt Collection and Financial Services
    As economic uncertainty leads to financial difficulties for many individuals and businesses, debt collection agencies, credit counseling services, and financial advisory firms may see an uptick in business.

  6. Thrift Stores and Secondhand Retail
    Thrift stores and resale shops can benefit from consumers seeking more affordable clothing and goods.

  7. Education and Training
    People often look to enhance their skills or retrain during economic downturns to improve their job prospects. Online education providers and vocational schools may see increased enrollment.

  8. Healthcare Technology
    Companies offering telehealth services, remote monitoring solutions, and digital healthcare tools have seen growth during the COVID-19 pandemic and may continue to thrive during economic uncertainty.

  9. Subscription Services
    Subscription-based businesses, such as streaming services, subscription boxes, and software-as-a-service (SaaS) companies, can maintain revenue stability due to their recurring revenue model.

  10. Government and Public Services
    Public sector jobs and services often remain stable during recessions, including healthcare, education, and law enforcement.

  11. Food and Beverage
    While upscale dining establishments may suffer, fast-food chains and quick-service restaurants often do well, as people continue to eat out but opt for more affordable options.

  12. Essential Transportation
    Businesses providing essential transportation services, such as public transit, delivery services, and logistics companies, tend to remain operational during recessions.

  13. Utility and Energy Providers
    Utility companies providing electricity, water, and gas often have stable demand, as these services are essential for daily life.

  14. Home Improvement and DIY
    As people spend more time at home during economic downturns, they may invest in home improvement and DIY projects, benefiting businesses in this sector.

  15. Personal Finance and Credit Repair
    Financial advisory services, credit repair agencies, and businesses offering budgeting tools can see increased demand as people seek to manage their finances more effectively.

It's important to note that while these industries may fare better during recessions, individual business success depends on various factors, including management, market conditions, and adaptability. Moreover, the severity and specific causes of a recession can impact industries differently, so it's essential for business owners to stay agile and adapt their strategies as needed.

 

Should I Sell My Business In A Recession?


Strategic Enhancements for Optimal Business Valuation

It's important to consider what can affect the valuation of your business and how to prepare your business for sale. Anticipating the sale of a business necessitates meticulous planning, typically spanning a timeframe of six to eight months. Analogous to the preparation undertaken before auctioning a property, entrepreneurs can take several measures to augment the appeal and intrinsic value of their businesses. These initiatives may encompass:

  • Financial Accountability
    Commencing with a comprehensive financial audit can engender trust and transparency, enhancing the attractiveness of the business to prospective buyers.

  • Governance Structure
    Instituting a robust governance framework fortifies the corporate backbone, signifying a commitment to ethical and responsible business practices.

  • Digital Presence
    Modernizing the online presence through website upgrades and refined marketing collateral can bolster brand perception and market presence.

  • Talent Acquisition
    Placing key personnel in pivotal management roles strengthens operational continuity and augments the business's readiness for transition.

  • Systems Optimization
    Updating and streamlining operational systems bolsters efficiency, which is often an appealing attribute for potential acquirers.

Ergo, it is imperative to recognize that such enhancements substantially elevate the allure of the business in the eyes of potential buyers, irrespective of the economic backdrop.

Read more: How To Calculate EBITDA Add-Backs


The Strategic Imperative of Selling During a Recession

While contemplating the sale of one's enterprise during an economic downturn, it is crucial to dispel misconceptions surrounding the viability of such a decision. The truth lies in the timeless desirability of quality businesses, irrespective of prevailing economic conditions. The decision to part with one's business is monumental and necessitates due diligence and discernment. However, if the choice is made to initiate the sale, delaying the process in the hope of economic resurgence is unwise.

Owners often grapple with diminishing enthusiasm to foster growth and expansion when they have decided to divest. It is often more prudent to embark on the sale journey promptly. This is predicated on the understanding that prospective buyers value a business's potential more than its immediate performance, and starting the sales process early allows for a smoother transition.

Read more: Selling Via a Business Broker VS For Sale By Owner

View our track record of business sales.


Navigating Industry-Specific Resilience in Recession

It is an established fact that all industries can weather economic downturns provided the underlying businesses exhibit exemplary qualities. While certain sectors may experience more pronounced repercussions, profitability is not the sole determinant of success during a recession. What truly distinguishes a business's resilience in trying economic times are its core attributes:

  • Competitive Advantage
    The presence of a sustainable competitive edge.

  • Cash Flow
    The ability to generate consistent cash inflows, fostering operational stability.

  • Business Model
    A well-conceived and adaptable business model that can withstand market fluctuations.

  • Profit Margins
    Healthy profit margins that ensure financial viability.

  • Market Position
    The ability to set prices rather than merely react to market dynamics.

  • Operational Efficiency
    A low degree of hands-on management involvement, allowing for a more passive ownership experience.

While prospective buyers acknowledge the differential impact of external factors like the COVID-19 pandemic, articulating these impacts effectively is a task best entrusted to adept corporate advisors. Their expertise in presenting these nuances can substantially influence the perception of the business's prospects.

Selling an Australian business during a recession is not a decision to be taken lightly, but when undertaken with astute planning and the guidance of experienced professionals, it can yield favorable outcomes. The enduring appeal of quality businesses, industry-specific resilience, and strategic enhancements lay the foundation for successful divestment, irrespective of economic fluctuations. Such considerations should be at the forefront of every business owner's contemplation when navigating these complex waters.

Business Broker - Garry Stephensen

Garry
Managing Director
Business Broker - Karen Dado

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Research Director and Corporate Broker

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