Recently, as I’ve been talking with owners of mid-size businesses about Exit Planning, I’ve been hearing the same refrain: many of those who were ready for retirement waited too long to sell. They were trying to time the market to sell their business to get the absolute best price and terms. But timing the sale of your business is very difficult and can often have unintended consequences.
For example, recessions come and go on a regular basis and cannot be predicted. Since 1991 there have been four recessions, starting in 1991, 1998, 2001, and 2008. In each instance, the effects on business of the economic downturn following the recessions lasted much longer than the official recession length as determined by government statistics.
Due to the unpredictability of recessions, there’s no way to really know when a recession will hit, how long the economic downturn will last, how it will affect the market for your specific type of business, or how long it will take for the economy to recover once the recession is over.
You also can’t predict how a recession will affect the value of your business. I’ve seen businesses that were solid and profitable when a recession started end up being more adversely affected by the downturn than expected and never recover. If the owner had moved forward with Exit Planning earlier, the sale of the business would have brought a far greater return.
Most wealth managers tell their clients that it is impossible to time the stock market. That holds true when exiting your business. Since recessions come and go on a regular basis, it is of the utmost importance to take into consideration these volatile business cycles when planning the sale of your business. If you don’t get out at the right time you may have to hold on way past your retirement age to catch the next “up” cycle. To be safe, you should start your Exit Plan as soon as you can so you don’t get caught in the next recession and have to wait it out.
