2020 started off as a promising time for selling your business. Capital was available from buyers and lenders, and the market was very favorable for sellers. Unfortunately, the landscape is dramatically different just a few months later due to the COVID-19 crisis. Some business sales are on hold, others are slowed down as everyone tries to understand the impact of the pandemic on their business or industry.
There is reason to be hopeful, however. Liquidity remains in the market, and we’re confident deals will return to the pre-COVID-19 levels in the next few months. But the sale process may be a bit different than the previous norm. Expect buyers to focus on questions such as:
- How did you manage cash during the crisis?
- How did you perform during the shutdown and delays?
- How did COVID-19 impact your earnings and forecasts?
- Will COVID-19 cause any structural changes in your industry?
Here are some recommendations to help you answer those difficult questions.
1. Stay Above Water
It’s important that you not only stay open, but that you stay solvent. Future buyers will want to see how you managed your cash levels. What you do during a challenging time will often reveal how your business may perform during healthier times.
2. Quantify the COVID-19 Impact
To get a proper business valuation post-COVID-19, it’s important for buyers to know exactly how the virus affected your business. You want them to know what “normal” was, and how the current situation differs from that norm. Think about lost sales, delayed sales, impacts of layoffs, supply chain disruptions, as well as things like government loans. All COVID-19 impacts should be carefully calculated and fully documented. That includes taking a look at your 2020 and 2021 forecasts; they are likely quite different in the face of new realities.
3. Take Corrective Action
Carefully document any changes you make to deal with the pandemic situation. Are you focusing more on certain products over others? Have you successfully implemented remote work-from-home solutions? Have you significantly changed your overhead costs? A future buyer will want to see your business’ ability to pivot and change during a down time.
4. Be Flexible
Buyers and lenders will likely be wary in the coming months. That could lead to lower business valuations, or more difficulty in funding deals. That doesn’t mean a deal can’t be done, but it means it might look different than your original expectations. We expect more “earnout” solutions to cover a portion of the purchase price as buyers look to cover their assets. Outright sales may also not be the best approach – you could explore alternatives with a more gradual exit such as a partnership or minority equity investor.
5. Get Better
What are you doing right now to improve your business? Cash may be tight, but you can still make improvements now that will positively impact your valuation in the future. What can you outsource? How can you move to cloud solutions to improve work-from-home capabilities? Is your financial plan, budget, and forecasting up to speed?
Selling your business is a huge undertaking – before, during, or after the pandemic. But with trusted business brokers alongside you like CGK Business Sales, you can successfully see the process through to completion. Our Nashville office (or any of our offices nationwide) is ready to talk. All conversations are confidential. Contact us today.