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. Obviously, the top winners, if there are any, are the businesses that provide essential services. The market barely got over the 2008 financial collapse, cautious investors number 1 request for “type” of business is “recession resistant”. Businesses that could stay open and continue to thrive during this climate will have added value now and in the future.
#2. Businesses that have/had a solid diversification of industries and clients will show the best resistance in all financial climates. This means that if your business was even able to stay open and it also served a wide variety in segments it was less effected. The value of this will become obvious to the buyer even if the business suffered a loss. If your business was closed but you were able to find some new revenue stream, then you too will benefit from your Darwinian business style.
#3. Businesses in the Service sector are usually lighter in fixed overhead and able to weather challenging financial times by reducing their main expense: payroll. The ability to adapt makes this type of business very appealing to buyers. However, I will caution that running this type of business always requires great care towards the employees, as employees are both the COG and the top asset of the company.
#4. Traditional SBA funding parameters are fundamentally changing due to the stimulus bill that just passed the Senate and is waiting for the House and the President to approve. The SBA guaranty is traditionally 75% of the amount a buyer borrows. The CARES Act legislation increases the government guaranty to 100%. This will give banks a lot more confidence to approve a loan. Banks must still be able to collect on a guaranty from the government which is not always a sure thing, so it is not a rubber stamp. Additional changes to this program are removing the personal guaranty’s, SBA fees and collateral requirements. Lending is done on a case by case basis. If the narrative for why the bank should take a chance on doing the deal makes sense to underwriter, then the deal should still be able to get done.
#5. Valuation is the big concern for a potential sale for 2020. The selling of a business is never black and white, it takes a close examination of ALL the facts. This event is unprecedented, and it will surely affect all business segments across the board. However, if your business can resume at the same levels that it operated at prior to this disaster, then I argue that it has proven its worth based on a multiple of last year’s earnings and should even receive a premium for its ability to come out the other side unscathed.
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
California Business Brokers, Inc.