If you are an owner manager, selling your business is likely to be the biggest transaction of your life. The decision to sell has a personal dimension and there may not be a right or wrong answer to the question ‘is now the right time to sell?’. However, this blog will hopefully help you think things through.
How willing am I to carry on with the business?
Some owners will be feeling battered by the travails of Covid-19 and may want to exit, perhaps seeking a new work/life balance. Others may see fresh opportunities and may even feel energised. For some closeness to retirement could have a bearing on their decision.
What is the outlook for the business?
It is advisable to think carefully about the business’s prospects. This is helpful both for the decision and also for the business generally.
The dynamics of doing business may have changed for some companies; there may be winners and losers over time. Thinking about the business from a variety of perspectives can be helpful. What are the risks? Where are the opportunities? How will the business be viewed by a buyer?
What about other stakeholders?
For example, some owners have a longstanding relationship with staff and may want to make sure that their future is considered. It is something which can affect the choice of buyer.
Securing the future for staff could also be a factor when deciding whether to sell. If the business is likely to lack financial resources as a standalone company, could the future be more secure with another owner?
There also may be other stakeholders, for example family members – personal circumstances such as health can influence the decision.
What price can I expect?
I do not do valuations (although I am happy to make introductions to people that can help on that front). However it is fair to say those businesses with robust prospects for growth and profitability which have a distinct competitive advantage are likely to fare well. It’s generally important for the business to be able to operate without you, or at least after a small transition period.
Covid-19 may have affected valuations positively or negatively depending on the sector or business model. For example the share price of Zoom increased by over 300% between mid-January and mid-July 2020. On the other hand Restaurant Group’s share price reduced by 65% over the same period.
Do you expect that there will be an upside to the value if a sale doesn’t happen in 20/21? What are the risks in achieving that? (However also bear in mind that part of the sale price could include an ‘earn out’ element which would be based on future performance).
Perhaps there are buyers who see particular benefits of acquiring your business now? They may be prepared to factor some of that into the price.
Am I prepared?
Selling a business can involve a rollercoaster of emotions. Finding the right buyer, the tension of negotiations, intrusiveness of due diligence (and dealing with problems that arise), breaking the news to staff and other stakeholders and the euphoria of getting the deal over the line. The effort and investment both in time and emotionally is often underestimated.
Preparation is important so that you can cope with the demands of the deal. You will need to run the business at the same time as providing lots of due diligence information and answering queries.
These things will apply whether you sell a business now or in 10 years time, but they are worth bearing in mind.
There won’t be a one size fits all answer. As well as the financial side, your attitude to risk and personal circumstances will be important.
Selling a business is complicated at the best of times and the current environment is likely to make things even more challenging.
Due diligence is likely to be more demanding than ever. If you are concerned that the financial side may not pass muster, your accountants may be able to help – if they have the bandwidth and the right experience. Alternatively someone like me can provide specialist support, as well as a fresh perspective on the numbers which can be useful.
Similarly corporate finance advisors or business brokers will look at the business strategically and help with identifying buyers, marketing and negotiations. Having experienced professionals onside comes at a cost, but one which should pay for itself many times over.
David Lewis 17/7/20
This article is for general information and interest and may not be comprehensive. Specific circumstances will also vary. Neither Camrose Consulting Ltd nor the author accept responsibility for any loss arising from any person or organisation acting or refraining from acting based on information or opinions contained herein.