The average American small business owner is over 60. Many of these people are concerned that current circumstances with COVID-19 and the economy will prevent them from being able to sell their company and fund their retirement. At the same time, many who were not previously planning to sell are now considering it, because at their age they do not want to invest in rebuilding during a recession. Regardless of the state of the economy, there are always people looking to buy existing businesses and investors looking for opportunities.
Most advisors expect business valuations to decline overall, but every business is unique. Each has its own strengths, weaknesses and attributes that contribute to its overall value. Many businesses that were considered essential at the height of the pandemic saw their valuations go up. Businesses that offered non-essential services and were forced to close saw theirs go down, but even within those struggling industries there are exceptions. Businesses that have the cash flow to make it through these tough times without closing permanently will still be sought after, because investors assume they will eventually reopen and recover. Being financially resilient enough to reopen after an extended closure can also help a business get back some of the value lost from a lack of sales. This is because it shows buyers that it has a financial foundation strong enough to survive a recession.
Consider Your Exit Strategy
You might be in a position to retire soon but the recession has you conflicted. If you are having a difficult time recovering from the negative effects of the pandemic, you should probably consider selling your business, even if it’s for less than you desire. By deciding to overinvest in the business to try and save it, you might deplete too much of your assets, making it difficult to retire. If you really don’t want to have to delay retirement, sell now and salvage your savings. It’s a better option than spending that hard earned money trying to stay afloat and then running your business for another few years to try and earn it back.
Start Preparing Now
If you want to list your business for sale within the next year or two, take action now to prepare it. Clean up your financials, including profit & loss statements, tax returns, expense reports, balance sheets and cash flow statements. If you don’t employ a bookkeeper, hire outside accountant or CPA firm to clean up your books. Buyers (and anyone lending them the money to purchase your business) will want to see a clear picture of where your profits are coming from. Having these documents ready in advance will give the impression of an organized, well run business. Conversely, having to scramble to put them together, or taking too long to provide them, can cause a deal fall apart.
Reduce Potential Risk Factors
Identify any red flags that could scare off buyers and determine if it is worth your while to fix them. Examples of things that could spoil a deal would be pending litigation, expiring contracts with suppliers or vendors, slow-moving inventory or low-margin products and services. Address these items as best as you can. Doing so will make your business more attractive, more valuable and may even increase profits or operating efficiency while you are waiting to find a buyer. Many investors are willing to purchase a business in need of rehab, convinced that they can turn it around, but you need to be up front with any issues that you cannot resolve.
Make Sure Business Can Go on Without You
Show the buyer a clear path to how they will run your business when you are gone. A business that is too reliant on its owner will probably not be as successful without them. Buyers don’t want their newly acquired business to suffer a major setback due to their own learning curve, and many want to be hands-off. Make sure you have knowledgeable employees in place and well documented operating procedures, so that a potential new owner is assured that the ownership transition will be smooth.
Hire Professional Help
Anything you can do to improve your business will help it sell, even in a harsh economic climate. An experienced business broker can provide invaluable assistance in the process of preparing it for sale. They can determine a fair market value for your company and advise you on steps you can take to increase it. A broker’s impact is even greater during an economic downturn, because they can protect you from competitors trying to purge your business, help filter out unqualified buyers and negotiate with low-ball offers. The last move you should make in preparing your business for sale is to make sure you don’t do it alone.
Many small businesses in Southwest Florida have been hit hard by the pandemic. If you are a small business owner in the Sarasota, Fort Myers or Naples metro areas and are worried that your retirement and years of hard work may be in jeopardy, contact CIBB today. Our free business valuation and consultation could provide all the information you need to decide what to do next.
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