Learn About The Critical Linking Between Business And Economy, And How That Impacts Buyer Perception, And Possibly Your Timing.
Business and economy are closely interrelated. The state of one will inevitably lead the state of the other. It is mostly true to state that the state of the economy is the sum of the state of all the business in the economy. And that is as true at the international level as it is at the local level. And vice versa.
However, that does not necessarily mean that at the micro level the state of business and economy will be exactly the same. Your business may be under-performing the local and broader economies. Despite this, unless under-performance is related to local oversupply, regardless of the cause, you will be able to stimulate buyer interest in your business. And if the overall economy is strong, it will have a positive impact on the price buyers will offer.
The famous investor Warren Buffet views business and economy slightly differently. And based on his previous bad experience, he is not interested in buying into a turn around situation. And that could be the situation where a business has been under-performing the economy. Which many buyers would see as an opportunity. Although one where one of the important driving processes and procedures was not performing.
Mr. Buffet has an almost contrarian view of the business and economy relationship. He wants to buy at the bottom of the economic trough, when pessimism is running rampant. He wants to buy when no one else is interested, and when expectations about price are at their lowest.
This view of cycles has served him extremely well. A strategy of buying when all are selling, and selling when all are buying has been extremely successful for many investors. And that includes investors involved in buying and selling businesses regularly.
What could this mean for you? It could require some extraordinary discipline. It could point you in the direction of diligently monitoring the direction of the economy, being ever conscious of the business and economy relationship.
The real discipline will be needed when you detect that the economy is in early decline. Remember that they eventually move in the same direction, although there may well be a timing difference. The need for discipline will arise because when the economy is in early decline, is likely the best time to sell your business. But your natural inclination will be to hang on for a couple of more months to enjoy the good times.
Selling when both are moving higher, or at least have not gone into steep decline will help you achieve the highest valuation. Buyers will still be very optimistic, and will be inclined to be more generous on valuations. And although each situation is different, the state of the economy usually has a greater impact on valuations than does the state of an individual business.
There are several good books written about Warren Buffet and his investment philosophy. Most public libraries stock one or more. Any one of them is well worth the time it takes to read it. And you will get a much deeper understanding of his view of the economy and business cycle than I have provided. Learning from the most successful investor of all time, and applying those insights as you prepare your business for sale, will benefit you immensely.
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