Managing Risk: Selling in a Depressed Market

​When thinking of selling you business for whatever reason (death, disability, divorce or departure) think of your business as a commodity or investment tool. In this depressed market commodity prices are low, the rand is under pressure, the overvalued stock market is volatile and interest rates are set to increase. Seems like a bleak picture? Well, yes  …and no.

Investors will always seek alternative opportunities to invest and therefore you can sell your profitable business in a depressed market, providing that you are willing to:

Be positive

The most important thing about a slow period is not to become depressed by it. If you are disheartened, prospective buyers will sense desperation and fear, and this will have a negative effect on your dealings with them.

Plan ahead and don't wait too long to sell

If you wait too long to sell you can miss the window of opportunity. Long-term planning is key to any successful business sale. Keeping updated records and your sales portfolio on hand ensure that, when an opportunity presents itself, all the relevant and up to date information are on hand.

Price your business with care

Prospective buyers know that the economy and businesses are under pressure and they may seek to take advantage. The worst thing you can do is start too high and ratchet down your asking price by degrees. Buyers will smell desperation and they will make low-ball offers or they will wait to bid until your asking price is at its lowest point. Asking too much or too little for your business can lead to a dead end street.

Plan an aggressive marketing campaign

Get your marketing strategy right so you can attract more potential buyers. Remember that most buyers start their searches online.

Identify prospective buyers

Do you know precisely who your prospective buyers are? Finding a demographic (average income, education, occupations, geographic location) can tell you how to reach your buyer through advertising and networking.

Structure the deal to make it affordable

Deal structure combines a set of terms that make for a successful business ownership transfer. The key objectives are to provide the seller with a market-related price for the business and to ensure that the business buyers can operate the business in line with their financial goals. No financially sound deal is made on price alone. Typically, a number of important terms must be agreed upon as well, such as:

• Amount of the buyer’s down payment
• Seller’s financing terms
• Outside lender financing terms
• Whether the transaction is structured as an asset or stock sale
• Non-compete and consulting agreements with the outgoing ownership and management
• Whether part of the business purchase price is held back in an earnout arrangement

Consider seller's finance

During a period of economic recession, financial institutions feel the economic pinch first. Banks will not lend beyond a certain percentage of the collateral in order to secure its interest. Offering to finance a portion of the purchase of your business can be a win-win for you and your buyer.

Prepare to negotiate

There are basic types, phases and skills needed for successful negotiations. You'll not only need specialised people to assist but also an open mind. Lack of preparation in a negotiation almost always sets a person up for failure. Make sure you get into the right frame of mind before you begin. Aim to be tough, business-like and alert, but don't put yourself above or below them. Stay relaxed and unhurried and don't reveal your feelings at any point.

Choose the right broker to represent your business

Choose a broker that is prepared to go the extra mile and who is part of a network of other brokers. Aldes Namibia has more than 36 years of experience, 40 offices countrywide and have more than 90 brokers to assist you. They have the specialised skills to help you sell your business in a positive or negative market sentiment.