I have received emails and calls from people who have seen me speak, professing that I was right when I said we would be in a recession by the 2nd quarter of 2020.
I actually was wrong.
Covid-19 caused this recession, not the rupture of the global debt bubble I was speaking about.
But, the prick to blow the emerging nations’ debt bubble is still on the horizon. The debt levels are enormous and the creditors are banks not only here in New York but also abroad. Yep, we really are a global economy!
As these foreign economies contract because of Covid, their ability to service the debt fades and the potential for insolvency soars. If they are unable to achieve loan forgiveness or restructure of the debt we’ll be sinking into a global depression. Monday’s Wall Street Journal reported that 100 countries have looked to the IMF to fund the Covid-19 battle, but debt-relief advocacy groups fear that instead of going to aid in the pandemic, the funds are being used for debt payments.
This is a humanitarian and financial disaster in the making.
So, the next question I am asked is always: “How much time do I have to sell my business before the economy shifts again and capital dries up?”
My honest answer is always “I do not know.”
My intention isn’t to cause panic. However, I do know that the earlier you prepare, the better the potential outcome. And an owner’s readiness will guide in understanding the strategy that will best meet your goals.
In our office we ask three main questions to ascertain whether a business owner is ready to go to market:
- Is the business ready to be transferred?
- Are you, the owner, ready financially?
- Are you ready emotionally?
And, there are really only four types of business owners:
- I’m rich and I’m ready to go. Get me out at any price!
This business owner has personal savings and/or outside income sufficient to sustain their lifestyle. Ownership of their business is optional, not necessary for survival, and their personal involvement in the day-to-day business operations is not critical. They really view the business more as a hobby than a chore, with limited emotional attachment. Often there are estate tax concerns that will need to be addressed in their exit plan. Many times their decision to exit is precipitated by a specific event, which might be internal to the business or a personal disruption; or external to the business, such as the forced shut down due to Covid-19.
- I’m ok, considered well-off, but I want to continue working.
This owner views the business as enjoyable and they are necessary to the day-to-day functioning of the business. They are close to having enough financial resources to support their post business life, but not quite. They may or may not be emotionally attached. Typically, these owners are interested in a phased out, systematic approach to exiting.
- I’m staying and I want to grow this baby as high as I can.
The entrepreneurial spirit is running strong with this group. They are focused on growth but may be capital constrained and unable to support their projected growth. These owners may have an exit strategy in mind and may even think they know their future buyer. They are looking to increase their wealth in a tax efficient manner.
- Get me out of here as quickly as possible, but at the highest price.
This owner most likely has the majority of their wealth locked up in their business and has limited external resources to support their post-business lifestyle. They may be pressured to leave the business because of personal circumstances and are no longer emotionally attached. They want out and as fast as possible.
Legacy Partners, LLP is an M&A Advisory firm that provides impartial clarity and guidance through optimized exit strategies for all types of business owners. For more information or to schedule a consultation, contact Chris Vanderzyden here.