Time Cures All - Not!

By Scott Balfour

I want to dismiss a comment I hear all the time. Business owners often tell me that they want to wait a few years so their business or real estate will be worth more before they sell it. These owners say it in such a way that if anyone else doesn’t see that to be true then they just don’t understand. There is no doubt in their mind.

Time does not cure all! Didn’t we see almost a 40% drop in real estate from the peak in 2008? Wow. True, the market has made some recovery but it’s not because of time. It’s because the economy improved, unemployment improved, interest rates have been dropped and held low, rents have gone up, the market corrected with fundamentals not just expectations, etc. It wasn’t time, it was a multitude of factors that initially caused the market to drop over time and also improve over time, but time wasn’t the reason for the changes.

In real estate, there are things you can do in spite of the external causes mentioned above that can cause a change in value -both up and down. Maintenance neglect, tenant neglect, vacancies, bad tenants, no leases or under market leases; all these bring values down – not time. Strong tenants, strong rents, good tenant relations, high occupancy rates, exemplary maintenance, capital improvements, tenant mix, acquiring expanded zoning and use options, reducing operating expenses, and better efficiencies all improve the value of real estate – not time.

In business, I believe the time is even less of a factor. In fact, there is an old-time expression that comes to mind: “If you’re not moving forward you are moving backward”. Business owners grasp onto this “time will take care of it” attitude, I think, because of the need to be an optimist to be an entrepreneur. Just like in real estate there are external factors that affect the direction of a business. Again the economy, the industry, competition opening up or closing, traffic and demographic changes, technologies, and the workforce can impact the value of a business. This impact can be positive or negative, but once again it’s not based on time.

Internal factors play a greater role in businesses: profitability, innovation, management, inventories, efficiencies, pricing, regulation, marketing, sales, personnel, research, development, training, supervision, operation efficiencies, vendor relationships, and so on. All of these things can affect the value of a business but nowhere in there did I mention time. I’m concluding with my opening statement. Time does not cure all!

When you want to sell and there is a gap between what you want/need and what the market will bear, you have two options. One, change your expectations. Denial of market conditions or realities of a current market on the expectation that time will take care of it is ludicrous. And, two, commit to doing something different. Get different results, offer a different product mix, change personnel, change pricing or cost, enter or leave niche markets, etc. Change will cause change, not time.

At Magnusson Balfour, we valuate commercial real estate and businesses. Perhaps you could use the service to determine if there is a gap between your expectations and the market or as a benchmark measuring tool to see if the changes you make over time are adding appropriate additional value to the business. Many businesses have grown in size, but not in value. Call us today to talk about your valuation. 207-774-7715