Selling Now vs Later is a Difficult Judgment Call – From Jordan Zweigoron
We are living in unprecedented times. On the bright side, California local economies are gradually reopening, little by little. However, even with mandatory Shelter-in-Place orders slowly diminishing, it will take considerable time before consumers are comfortable, and before local economies are again thriving.
As a small business owner, you may be considering the best time to sell your business. Perhaps you were already planning to embark on selling your business before the abrupt arrival of COVID-19. Now, as we approach an awakening economy with as yet unknown challenges and obstacles, should you sell immediately? Or is it better to hold out, steering your company through the obstacles ahead – and sell only after a full economic recovery?
Answering the questions above is not easy, as each business owner has a set of unique circumstances. However, the considerations below may help you make the most logical decision in these challenging times.
How has your business performed through the COVID-19 crisis?
Is your business essential and fully operating throughout the pandemic? Or perhaps your company provides useful products or services to consumers during the crisis. If you’ve been fortunate to remain open, generate revenues, or even thrive through the crisis, your business will likely maintain its value. Active buyers are still seeking quality businesses to acquire, and you shouldn’t necessarily delay your exit strategy.
Similarly, consider how your business will perform through the coming transitional recovery period. As the economy slowly reopens and consumers begin to emerge, will your business be fully ready? Businesses that are able to fully capitalize on the return of consumers without restrictions on their short-term revenue prospects should be well positioned for an immediate exit plan, particularly if they have also performed well throughout the crisis as well.
Do you need to sell?
There is a vast difference between needing to sell your business and wanting to sell. If you need to sell your business (whether for financial reasons, health, or other reason), then you must sell while you can. On the other hand, perhaps you’re able to re-open your business but simply tired. In that case, you may want to sell. And in this case, the judgment call may involve the current vs future valuation of your business.
Is your goal to maximize your business value?
While it may seem like a rhetorical question (of course I want to maximize my value), there are many factors involved. For businesses that have not been generating revenue during the pandemic, it may be more difficult to sell immediately at market prices. In our immediate experience, there are currently Buyers for distressed businesses, and Sunbelt has a program to help Sellers address this specific situation. However, Sellers should be aware that distressed businesses will typically sell at a significant discount from their pre-pandemic value. If you’re looking to sell as soon as possible (even as revenues have dropped precipitously) that’s possible. However, it will likely come at a cost. For some Sellers, that cost is part of the judgment call.
Determining when to sell your business has never been easy. This challenge is even more significant in the midst of a global pandemic. At Sunbelt, we’re here to help with these challenging decisions.