Top 20 Destroyers of Business Value Tip # 18 – Not Understanding Business and Economic Cycles

Posted on February 25, 2013 · Posted in Blog

Local and national level economic cycles and conditions can have a major impact on the value of your business. When times are good, and business and consumer spending is plentiful, almost any business can look like a good investment. But when consumer and business sentiment turns negative, or a recession looming, investors tighten up and this impacts business valuation.

Business values change on a continuous basis. During good economic conditions you may receive a higher valuation for the same business compared to less favorable economic times.  A business may receive a lower valuation even if there is no substantial change or even if the business is more profitable!

It does not take a major recession, or economic boom to impact your value either. It could be a local trend, such as population growth, shifts in demographics or increased regulation and taxes.  Local conditions that impact your customers, suppliers and expenses such as rent, transportation or even weather, can impact business valuation as well.

Significant valuation characteristics are often out of your control, business and economic cycles being one of the major factors. As a business owner, you must step back and evaluate not just the intricacies of your business but the factors outside of your control. If you find yourself considering a sale, ask yourself: is the valuation where it was previously? Can you ride out this downturn another year, or more? Or perhaps there is no better time than now to exit.

Is your business’ value being destroyed by not understanding the local or global economic cycle and conditions?

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