With the disruptions caused by COVID-19, many owners are left wondering if now is a good time to sell their business. Strong companies that excelled through the pandemic have been getting most of the action lately, but buyers are expected to begin bargain hunting now that things are returning to normalcy.
The dip in inventory shows many buyers are working to bring production to pre-pandemic levels before entering the market. While generally good practice, this may not be the best move for everyone. For some, it will be beneficial to take advantage of the slower market before the influx of listings saturates the market six to twelve months down the road.
These are the three ways investors are categorizing businesses (and what you need to know about each):
Growth Mode
These companies are on the upswing. They have proven their ability to adapt and maximize streams of revenue. Often, they demonstrate creative ways of increasing sales or solving problems.
- Revenue increased during the pandemic (although not COVID specific like gloves, masks, hand sanitizer, etc.)
- Most desirable in times of uncertainty
- Currently, inventory is low, demand is high
- 37% of buyers are seeking to spend the premium for businesses with production higher than pre-shutdown levels* (buyers surveyed BizBuySell Q1 2021)
Steady
Well-established businesses with loyal clients. Many times, investors can identify the few tweaks needed to take an already great thing to the next level.
- Consistent performance throughout pandemic
- Diverse customer base
- 54% of buyers would be willing to spend fair market value for businesses maintaining pre-shutdown production.* (buyers surveyed BizBuySell Q1 2021)
Decline
Although seeing a decrease in sales, there is still a chance to come out ahead. Planning a three, six, or twelve-month blueprint can help with a strategic exit. However, test the market and see how current values might compare to a sale at a later time. Keep in mind your numbers will need to be strong enough to support your asking price. Otherwise, it could affect the buyer’s ability to get a loan.
- What will it cost to recuperate?
- New software and security to allow employees to work from home
- Increased production to account for temporary closure
- Increase in hiring after losing employees
- 52% of buyers are ok with loss of revenue during COVID if they can buy at a discount* (buyers surveyed BizBuySell Q1 2021)
- A facelift is needed, but the right buyer might be willing to take it on
Buyers have been playing it safe by purchasing businesses that stayed healthy throughout the pandemic. Although productive, they come at a premium. Expect to see investors focus on more affordable projects that might need a bit of work.
What Buyers are Looking For
Regardless of where your business currently stands, investors will be analyzing what measures you took to remain productive throughout COVID. Be prepared to show quarterly numbers (not just annual) and speak in detail about how the pandemic affected overall sales goals.
Some of the most common changes implemented in small businesses included:
- Maximizing e-commerce and a mobile friendly site
- Introducing contactless payments
- Allowing employees to work remotely
- Launching virtual services
- Minimizing spending
- Cutting products that aren’t selling
- Trimming and restructuring staff
Due Diligence
The global pandemic is leaving potential owners with a whole new set of questions. Worst-case scenarios don’t seem so farfetched anymore and they want to know you have a plan. Demonstrate how you plan to stay active in the event of another shutdown.
- Is there redundancy in employee roles? Could one person’s absence be detrimental?
- Which employees are essential? How effective are the others working from home?
- How do factory closures and supply chain issues affect business?
- What effect did quarantine have on the demand of goods/services?
- Did you receive PPP? How was it spent? Is the loan forgiven?
Security
Now more than ever, virtual closings are an acceptable (and often encouraged) way to seal the deal. Entire transactions can take place electronically. Work with a professional to safely and securely share sensitive information and wire funds. Cybercriminals are known to target small businesses and specifically craft phishing attempts to intercept closing details. Know what to look out for and how to keep the transaction bulletproof.
Sell or Hold?
COVID took a toll on small businesses but there are still plenty of eager buyers. Take the guesswork out of where you stand in the current market by consulting with an experienced Business Broker.
Your decision needs to consider personal needs, the health of the business, and how favorable your company is over similar listings.
- Personal Needs
- Is the company providing your financial needs?
- How much longer are you willing to work?
- Business Health
- What investments are necessary to increase productivity?
- How long will it take to boost numbers?
- What is the cost of selling now vs. selling in 1 year? 2 years?
- Market Conditions
- How much leverage do sellers have in your current market?
- What is the lowest acceptable number you would sell for? Does the market support that?