By: Ted Burbank, CBI, FIBBA

There is a rhythm and pattern to life and to business. The seasons and cycles of the plant world are generally well recognized. In example, a plant sprouts, grows to maturity, flowers or produces fruit then withers and dies to decay and enrich the soil in support of the next cycle. Businesses have their cycles also, but they need not die in order to benefit the next generation.

Many never act upon these thoughts for countless reasons and as a result less than 25% of small businesses and franchises are ever sold. This is indeed a tragic statistic but it gets worse in a down economy, not because of the economy – but rather because the decision was not made to sell at the time it was supposed to have been during the normal cycle.

A Time to Grow and a Time to Go

When that window of opportunity passes we generally find the owner just going through the motions and allowing the business to coast or, more accurately stated, slide. Decisions to invest in the business are postponed or rejected. Eventually, and often, very quickly the slide accelerates with the end game no longer controlled by the owner. Much of the value of the business has been dissipated. At the end, either the business is "Sold" to a competitor (at the value of selected assets) or closed and the assets liquidated.

A Down Economy Intensifies the Usual Seller’s Market

• Layoffs, company closings and down-sizing flood the marketplace with people wanting to buy businesses
• Pricing formulas do not change because of economies
• Most owners of good businesses postpone selling in a poor economy resulting in fewer opportunities for the increased number of buyers
• A business’s value is dependent upon its outlook for future profitability
• You can get tomorrow’s price today for your business if you choose a buyer who recognizes the opportunity your business represents and considers expectations of future profitability when assessing value.

In order to obtain an optimum price for a business, regardless of the economic condition, one must attract the type buyer who will recognize the opportunity the business represents. In real estate, optimum value is determined by the entity that will recognize highest and best use of a property. Business prices typically reflect an acquirer’s perception of future earnings under their ownership. Therefore, the optimum value of a business is determined by the buyer who recognizes the most opportunity the business represents. A business can be considered worthless to one yet be worth millions to another.