How do business buyers and business sellers navigate these uncharted waters?
- Corona-sensitivity: Is the company in an industry that is “corona-sensitive” such as restaurants, bars, gyms or movie theaters? If it is unclear whether the business is corona- sensitive then include a contingency in your offer. In most deals contingencies are written to give the buyer the right to thoroughly investigate a matter in due diligence and cancel if not satisfied.
- Financing: Business financing continues to be attractive for business buyers. Depending on the size of the loan, these lower rates can save you tens of thousands or even hundreds of thousands of dollars in interest payments.
- Industry : We continue to see successful closings during this time, especially in industries such as manufacturing, distribution, b2b service, technology, e-commerce, healthcare, liquor stores, trucking, transportation and many other industries. Expect these businesses to continue to sell quickly.
- Supply Chain: Corona-sensitivity applies here too. Is China the only supplier? If so are those plants back up and running yet? Many Chinese plants are ramping back up as they are months ahead of us in this experience. Does the business have or can it institute back-up suppliers?
- Customers/Industry Served: Does the business serve an industry, such as travel, that is being disrupted? If there is a high concentration you should discuss it further with the seller. Likely it is a short term issue that may require more working capital or other creative deal structuring.
- Assess Long-term Opportunity vs. Short-term Risk: Coronavirus is hurting many people every day. It is also creating problems that businesses can help solve. Transportation, Logistics, Telemedicine, medical billing, general healthcare, remote learning, technology and delivery businesses are just a few that are adapting and thriving.
- Should I sell now?: This is a common question at Sunbelt Business Advisors these days. This is a short term health crisis. The measures being taken are prudent to control the spread of the virus. Arguably the press may be getting the market more excited than it should be. The typical business takes 6-9 months to sell. If you still want to retire in the next 1 -2 years you want to start now. Business brokers and M&A Advisors will prepare your business for sale now so it’s ready when the markets settle down.
- Did my valuation just go down? We don’t think so. If your business is the same fundamentally sound business as it was prior to this one-time event, your company should get the same offers as we would have anticipated before.
- People: Ultimately your people are the heart of your business. If your business is highly corona-sensitive than you may need to cut hours or make other difficult decisions. But you will also need to ramp back up in short order. Take care of your people and they will take care of you. If you are in a restaurant or similar business that cannot reasonably afford to carry the labor cost during this time connect your people with resources. Host calls or webinars to make sure they get connected to the unemployment benefits they need.
- Corona-sensitivity: Review the Business Buyer section above – how exposed is your business? Be ready to give fact based answers to potential buyers. This exercise will also help your business in the meantime.
- Are buyers going away? No and that’s the main reason we don’t think your valuation will change. There are and will be buyers in the marketplace looking for the business that fits them. There is good financing available to them and they are eager to deploy their capital.
- Understand your Options: Most business owners sell for human reasons, such as retirement. If you are ready for the next chapter take the first step of having a professional Business Broker or M&A Advisor at Sunbelt help you evaluate the corona-sensitivity of your business. As always we provide a complimentary value range to business owners.
Chris Jones is President of Sunbelt Business Advisors of Minneapolis (www.sunbeltmidwest.com) and has 20 years of experience helping sellers and buyers of companies.
Sunbelt Business Advisors is Minnesota’s largest seller of companies. Sunbelt is the largest business brokerage firm in the world with 200 offices worldwide.