With the current economic landscape, it is hard to find a business that hasn’t felt the impact of the pandemic. This has many small business owners asking themselves if they should sell their business during a recession. The answer is not the same for everyone, so you need to consider several factors before making a decision to sell or hold on.
The Value of Your Business and its Financial Health
All business sales begin with a business valuation. You have to know how much your business is worth before you can sell it. A valuation gives you an accurate idea of how much you can expect to receive from the sale. If your business is considered essential and has been able to stay open during the past few months, your business value could go up. It could increase even further if the pandemic has caused an increase in demand for your products or services. In this case, if you have been thinking about selling, now might be the time to do it, while your valuation is higher. There will be an increase in demand from investors for essential businesses and this can help you get more money from the sale.
Even if your business is considered to be non-essential, and has been closed for an extended period of time, your valuation might not be affected. This is because so many businesses have been affected by COVID-19, and once you are able to open again, business will steadily return to normal. What is more important is how the closure affects the long-term financial health of your business. Many businesses have taken on additional debt recently, which will negatively affect their valuations. If you have enough money in reserves or enough working capital to survive an extended downturn, your business will be much easier to sell. Businesses that do not have enough cash to survive an extended closure will be harder to sell because they are not has healthy, financially.
That said, if your business does survive this economic slow-down, it will probably been seen as a good investment to buyers. Being able to come out of this crisis without folding will show investors that your business is resilient, and can make it through a recession.
Buyer Financing
Since most businesses and individuals throughout the world have been financially affected in some way by the coronavirus, it might seem like fewer people will want to invest. However, interest rates are historically low right now and low rates almost always spurn investor activity. This also means that more buyers can access credit easier. As of right now, the SBA is also automatically covering the first 6 months of payments if a buyer purchases and funds a business by September 27, 2020. Even when this program expires, there are other programs that can help buyers during a recession.
There are some businesses that lenders will be unwilling to fund right now. This includes restaurants, gyms and health and beauty businesses, as well as a few others. These industries that have been hit especially hard. Until the restrictions on businesses in these industries have been lifted, it will be harder to find qualified buyers for them because financing won’t be available. If you own one of these businesses, you might have to wait a while to sell.
The Decision
If your company has been able to continue doing business over the past couple of months, it may be perceived as a recession-proof business that will appeal to investors, in which case it would be a good time to sell. Even if business is down, but you have been able to survive off reserves without taking on additional debt, it could also be a good sign to potential buyers, because you have a financially stable and healthy business.
Keep in mind that whether you find yourself in a good situation right now, or a bad one, it can take a long time to sell a business. Even when the economy is healthy, the process can take up to a year, and possibly longer. Are you planning on selling because getting your business back to where it was before the recession might be too difficult? Is business thriving right now and you want to sell it at its peak, or were you planning to sell anyways? Understand that your business might not be in the same circumstances several months from now. It could be financially healthy again, or well on its way to recovery. A steady month-to-month improvement can be enough to bring value back to your business. If you’re not financially fit right now, but can hold out a little longer, you may be able to sell for more money when the economy begins to rebound.
The bottom line is that if you try to time the sale perfectly, you’ll probably miss your window. Do you see yourself running the same business in a couple of years? If not, it might be time to start planning your exit strategy, regardless of how good or bad business is right now. The process of preparing your business for sale requires a lot of steps. The sooner you begin, the sooner it will sell.
If you are considering selling your business now, or in the near future, you need to begin planning your exit. You might want to retire, change your career or sell to achieve a financial goal. No matter what your reason is, planning for the day when you no longer own your business will make sure you are prepared for an uncertain future. Nobody wants to have to sell because of unforeseen circumstances. If you own a business in Southwest Florida and need help planning your exit, or preparing your business for sale, contact CIBB. We can determine how much your business is worth with a free valuation. This can help you decide if selling is the right move.