This incredible and unique situation may have you wondering if you should wait another year or 2 to sell your business, not necessarily.
The following Top 5 Things to Consider message applies to business owners that had good stable businesses with steady growth prior to the COVID-19 outbreak and were considering selling.
If you are concerned with what 2020 has done to your P&L and Balance Sheet, your concerns are valid. However, what happens after will determine if your business can be sold and for what price.
Top 5 Things to Consider:
1. Essential Service Businesses Are the Top Performers
Obviously, the top winners—if there are any—are businesses that provide essential services. Coming off the heels of the 2008 financial collapse, investors have consistently prioritized “recession-resistant” businesses. Companies that remained open and continued to thrive during economic uncertainty will hold added value now and well into the future.
2. Diversified Client Base Is a Key Advantage
Businesses with a strong mix of clients and industries show greater resistance to financial downturns. Even if operations slowed, diversity in customer base helps cushion the impact. If your business found creative revenue streams or pivoted effectively during closures, that adaptability adds value and shows your business has Darwinian strength.
3. Service Sector Businesses Offer Flexibility
Service-based businesses typically carry lower fixed overhead and can adjust more easily in tough times, primarily by scaling payroll. This flexibility is very attractive to buyers. That said, it’s essential to treat employees with care—after all, they are both the cost of goods sold and your company’s greatest asset.
4. SBA Funding Is Becoming More Accessible
Traditional SBA loan guidelines are shifting dramatically due to recent stimulus legislation. Under the CARES Act, the SBA guaranty may increase from 75% to 100% of the loan amount, making banks more confident in approving deals. Other possible changes include eliminating personal guaranties, SBA fees, and collateral requirements. While deals will still be judged individually, lenders may be more flexible if the story behind the loan request makes sense to an underwriter.
5. Business Valuations Will Require Nuanced Review
Valuation is a major concern for potential sales in 2020 and beyond. Selling a business is never black and white—it requires a thorough analysis of all the facts. Although this economic disruption is unprecedented, a business that can return to its pre-crisis performance levels may still warrant a valuation based on previous earnings—and perhaps even a premium for demonstrating resilience.
This is the time to take a Darwinian approach to your business. If you lost something that won’t be able to come back, then you need to go outside the box to replace it.
Keep a positive attitude and don’t be afraid to ask your employees, vendors, customers, advisors for suggestions on how you can service them. We will get through this; remember you are not alone.
Christina Lazuric Woscoff
Principal Broker
California Business Brokers, Inc.
