It is no secret that the pandemic hit many small businesses and retailers hard. Although many companies were able to move operations online, others had to scramble to come up with creative ways to stay afloat. As we begin to reach a post-pandemic time, some business owners are reassessing the future of their company. While some will continue to grow and expand, others have decided to take a different route and sell their business altogether. However, before a sale can be completed, there are several variables that need to be considered before finding a buyer.
Be Clear About Your Goals
For some business owners, it comes down to age and the amount of work that would be needed to continue running a business. On average, it has been noted that the average small business owner is 60 years old. On top of that, 40 percent of small business owners are over the age of 65. Considering this, it is no wonder that many are ready to sell and retire. The pandemic has also shown that essential businesses are not what many people originally thought they were. Online businesses, delivery, and technology companies were some of the highest in demand during the pandemic as very little social interaction was required.
The reasons behind the desire to sell will also determine how much work will need to be put in. Some business owners simply want to retire and do not have the time or energy to further invest in increasing the valuation of the business. If this is the case, the best thing to do is to sell at the current valuation. For those who are willing to put in some time and energy into repairing the business and then selling in a year or two, the road can be longer. The key is to ensure that investing in the business is not going to prevent retirement or becomes an even bigger financial burden. It is important to be clear about your goals and stick to the plan.
This may sound obvious, but the key to being able to sell a business post-pandemic is to stay open during the pandemic. There is more that goes into staying open, however. Buyers will want to see how the business was handled and was able to stay afloat and how the cash was handled. It is admirable to have been able to stay open during the pandemic but buyers will want to know how and where the money came from. This shows them that the business can make a profit in the future during less challenging times and a healthy economy.
Quantify Your Impact
It is time to be honest about how the pandemic affected your business in order to appropriately value your business. Some considerations include:
- Impact of layoffs
- Lost sales
- Delayed sales
- Supplier interruptions
- Government loans
- Business interruption insurance claims
- Potential loan forgiveness
- One-time costs
A business owner will also want to revisit the financial goals and forecasts for 2020 and 2021. These may no longer be valid and a buyer will need to be aware of what was projected and what actually happened as a result of Covid-19. You should also create new forecasts for how the business can get back to 2019 financial levels and beyond. This will save time not only for you but for buyers as well.
Take Actions and Document Them
Once you have taken a realistic look at the finances and determining a timeline for selling, it is time to take action. You may have had to pivot your business operations during the pandemic to stay open, which can help potential buyers make a determination. However, these changes must have been documented. Now, in post-pandemic times it may be time to once again readjust and take action. Some of these actions can include:
- Reducing overhead spending (reducing storage space, staffing, and employee fleets).
- Focusing on certain product offerings (for example, pivoting to offering personal protective equipment and other safety items related to the pandemic).
- Changing payment terms (reducing the timeframe customers have to pay or requesting them to pay in full at the time services are rendered).
- Services offered (offering new or remote services on top of what your company also offers).
If buyers see that you were able to successfully pivot the operations of the business and keep it profitable during the pandemic, they might be more likely to purchase it if you put it up for sale. Potential buyers might see that your type of business can succeed no matter the adversity it faces.
During the pandemic, some corrective actions included government assistance either through loans or stimulus packages. It is important to be straightforward about these and provide any relevant documentation. Documentation on business pivots is vital to show potential buyers the expenses involved and the revenue generated. If you are unable to provide proof of your success, the pivots in operations might be for naught.
Expectations of Selling a Business
In a post-pandemic world, selling a business looks drastically different than it did prior to the pandemic. Lenders are much more apprehensive to fund deals and buyers can be a bit wary until they have all pertinent information in their hands. This can cause some concerns for sellers who may be discouraged.
Valuations will be much different than they were in the past due to what happened to a particular business during the pandemic. What many deals are currently including are earn-outs. This is when a portion of the purchase price is deferred and is paid to the seller of the business only when the business meets post-close targets. These targets will be predetermined and agreed upon by both parties.
Another option for business owners is to make improvements and repairs prior to selling, especially in light of new workplace trends such as remote and hybrid schedules. Consider interior changes that can be made to up the overall aesthetic appeals, such as making renovations that could better improve an office space’s ambiance and help to encourage better productivity. Be intentional during this stage, taking enough time to make improvements to prepare for sale and be able to obtain a higher valuation. For example, some modern considerations include implementing cloud-based technology for remote work and virtual client meetings, especially in light of the new remote and hybrid structures of work.
With that said, especially if you’re working to fix up an older structure, be aware of potential hazards that can come with making changes to older buildings. For example, risk of asbestos exposure increases greatly in older buildings when dust is kicked up through tearing down walls or stripping plaster from ceilings or other surfaces. This is also a perfect time to check your building for other structural risks such as water damage, termites, and so on.
Look at the Business Finances Realistically
For some small business owners, business finances can get convoluted when personal expenses are misconstrued as business expenses. It is important to clean up the business and personal finances with the help of a CPA to have a clear and concise financial picture for potential buyers. Any bank or potential buyer will want to ensure that they have a true financial picture and know exactly what money is coming in and what money is going out.
Although the pandemic hit small businesses especially hard, this does not mean that the company has little to no value. It is important to hire a business broker that can create an accurate value narrative. This is important when the business is back on its way to profitability. That may be the perfect time to begin the selling process. It will take some work and number crunching but it can be done with the right team and initiatives.
Are There Buyers?
One of the biggest fears that small business owners have is that there will be no buyers or investors interested. Historically, buyers and investors are always looking for new opportunities regardless of what the market says. In recent times, valuations for essential businesses have gone up while some companies saw no impact in valuation as a result of the pandemic. Each business that goes on the market will have its own challenges.
A unique finding is that there is a new set of buyers emerging, considering how the pandemic caused a lot of layoffs and amongst those were managers of large enterprises. Historically, these kinds of professionals have better credit, more assets, and the skills to run a business. They also now have the time and desire to start or manage their own business. The traditional buyer is no more and the doors are open for anyone willing.
Anything you do to improve the operations of your business will be an investment in your future. The slightest improvement could increase the value of your business, even in the post-pandemic world. These improvements will provide you with an edge when you decide to put the business up for sale.
Related: Selling a Business With Real Estate