How Will Coronavirus Impact the Timing of When to Sell Your Business? – From Jordan Zweigoron
These are unprecedented times. Many small business owners are conflicted about when to move forward with the sale of their business in these uncertain times.
Over the past 10 years, our strongest advice to small business owners was: Sell while revenues and profits are growing, and while the economy is strong. However, this pandemic is inflicting broad, horizontal impact on almost every small business across the US. As small business owners look toward some indications that the virus is reaching peak with a light at the end of the tunnel, it’s natural to question how long a small business owner must now wait before launching an exit strategy.
In the current environment, and the recovery aftermath, it’s unrealistic to expect that every interested Seller will need to wait months or years to start the process of selling their business. It may not be necessary for a business to return to “Pre-Coronavirus P&Ls” in order to sell their company.
A few years ago, one of our Sellers called to tell us that a plumbing incident effectively shut down his thriving business for a month. This plumbing incident had a sweeping impact on his business – with revenues dropping close to $0 – while repairs were underway. A short time later, a Buyer came along, who was willing to overlook this unfortunate month, due to the unusual circumstance and non-recurring nature of plumbing problem. The result was a successful transaction.
Once the country moves into recovery from this tragedy, how will Buyers look at the corresponding drop in revenue, which is directly attributed to the virus? Will Buyers overlook the dip, thereby erasing (or at least minimizing) the negative economic effect on the business’ valuation? It’s too early to tell, but it’s certainly a possible outcome. It’s unclear how much, if any, impact your current period P&L will have upon the valuation of your business.
57% of small businesses in the US are owned by Baby Boomers. We’ve been pointing to this figure for some time, knowing that the future all but guarantees that, as Baby Boomers gravitate toward retirement, younger entrepreneurial Millennials will inevitably become Buyers. At what point will the ‘business transfer tsunami’ occur? Will there be a flood of Baby Boomer-owned businesses on the market, thus creating a Buyer’s market? Will the Coronavirus speed up this coming wave of business transition? It’s difficult to say.
What’s important to realize – given the current virus-impacted economy we find ourselves in – is that the new right time to sell your business is simply when it’s time to move on or retire from your business. If you’re considering selling your business in conjunction with the Coronavirus recovery, there is nothing wrong with that approach. Perhaps there will be more Buyers at that juncture, taking advantage of lower interest rates. And perhaps while you have some downtime in isolation, Sunbelt can work with you to get a jump on your exit plan.
These are indeed unprecedented times. Sellers, Buyers, and Business Brokers alike must work diligently to properly value small business, and work with creative intention. While there will be an end to the Coronavirus epidemic, the sale of small businesses in the future will be viral.