COVID-19 Effects – Improving Your Business Value in Uncertain Times – From John LaMay
The COVID-19 outbreak is a human tragedy that has triggered unforeseen dynamic changes to our global health and the overall business climate. Our hearts and prayers go out to all. It is difficult to estimate the timing related to recovery. At this time, shelter-in-place measures are expected to be observed thru April or later in key areas. With today’s data, many are optimistic about recovery in key areas starting as early as June, and some other areas being slowed down thru Q3 or Q4. Some business sectors are hit much harder than others, while a select group have flat or increasing sales. Buyers like the current interest rates and core acquisition opportunities. Many sellers will report unusual (COVID-19 related) variances thru Q2.
One small business owner asked, what level of uncertainty can we really be prepared for? An exit strategy is a risk mitigation plan that addresses a possible exit (unforeseen or not) and integrates various possibilities into the strategic plan. Many sellers tell us they left money on the deal table, as they didn’t prepare their business adequately enough to be more attractive to the market.
There are far too many pieces in this particular puzzle to wait until the last minute. You’ll want to begin the process sooner by asking yourself some key questions.
First, you’ll need to determine the actual value of your business. It is a harsh truth, but what you think your business is worth and what the market feels that it is worth may be two very different things. Know the Ten Risk Factors that influence the value of your business and the time it takes to sell. Understand it today.
This point serves to underscore the importance of working with a business broker or M&A advisor, in addition to your other trusted advisors, early in the process. An experienced broker knows how to go about determining a price that will generate interest and seem fair.
Secondly, you’ll want to consider whether or not you truly want to sell. It is not uncommon for business owners to begin the process of selling their business only to realize a few hard facts. Wanting to sell and the time being right to sell are often two different things.
Upon placing your business on the market for sale, you may learn that you’re not emotionally or financially ready. If this happens to you, consider it a learning experience and improve the Top 10 Risk Factors that will serve you well down the line.
Get Your Ducks in a Row
If you have done a financial assessment, a little soul searching and have begun working with a business broker or M&A advisor to determine that now is a good time to sell your business, then there are several steps you’ll need to take. You can be sure that any serious prospective buyer will want a good deal of information regarding your company.
At the top of the list of items potential buyers will want to see are three years of profit and loss statements as well as federal income tax returns for the business. Other important documents ranging from lease and lease related documents, lists of loans against the business and a copy of a franchise agreement, when applicable, are all additional documents that you will need to provide. You should also have a list of fixtures and equipment, copies of equipment leases, lists of fixtures and equipment, and an approximate amount of inventory on hand. You should understand how taxable net income, owner salaries and discretionary expenses influence your core business value. A failure to not have this information organized and ready to present at a moment’s notice could be a costly mistake.
Working with trusted professionals, such as your accountants, lawyers, and business brokers, is a savvy move. Owning and operating a business can be a complex process, and the same holds true for selling a business. Investing the time to seek out experienced and professional advice is the first step in selling your business.