Should You Sell Your Business During a Recession? Maybe.

If you’re building your exit plan, rising interest rates, soaring inflation, and the specter of a contracting economy may weigh heavily on your mind. Selling during a recession may seem like a bad idea—something to only consider if your business is failing and you have no other options. Every business is unique, though, and the recession will not hit each market segment equally. Moreover, selling a business during a recession can actually be a great idea for some companies. So if you’re considering an exit or evaluating what to do next, don’t cross selling off your list. It may still be a good option.

Benefits of Selling During a Recession

Selling during a recession is no small feat, but for the right business, it can actually be a great strategy. You may want to consider selling during a recession if:

• You truly have no choice. This might happen if you’re ill, or if your business is losing value so rapidly that selling it is the only hope for saving it.
• You’re in a market segment that has not been heavily disadvantaged by the recession.
• Your business has improved performance during the recession, or offers a product or service that can help people thrive through a recession. Consider how many digital services companies thrived during the COVID-19 pandemic, or how health services vehicles continue to be hot M&A acquisitions.
• A merger would create valuable synergies that could help your business weather the economic storm.

What to Expect When Selling a Business During a Recession

It’s true that selling a business during a recession can prove challenging. Valuations tend to decline. And at a time of high inflation, the money you do get for your company will simply be worth less. More stringent lending standards may make it more difficult to find a qualified buyer. This has an upside, too. While there may be fewer buyers, those who are available will be of a higher caliber.

Buyers become more risk-averse during a recession, so expect a longer and more exacting due diligence process. When uncertainty is high, buyers don’t want to compound it.

Tips for Preparing to Sell Your Business in a Recession

If you think now might be the right time to sell your business, a successful sale begins with hiring a business broker or M&A advisor. They can give you an objective, expert assessment of how well positioned your business is. They can also help with marketing to and pre-screening buyers, which ensures your business will sell for maximum value.

Your M&A team should help you explore options for deal structure, too. Maybe an ESOP is the best option, or there’s an alternative structure you've never considered. Some other tips for a successful sale amid a recession include:

• Plan early, so you can gather your paperwork, get a reliable valuation, and prepare for due diligence.
• Thoroughly screen all buyers.
• Keep your business thriving during the recession. Your job is to focus on the business. Your advisory firm oversees the sale.
• Don’t let the sunk cost fallacy make your decisions for you. If a sale is not right for your company or your future, it is always better to walk away and try later—but make sure you only do so after talking to your team about your options.