While major portions of the business world are on hold, business owners and leaders can still position their business for sale or acquisition in a positive way by focusing on the future. Thinking critically about your five-year plan is a productive way to spend your time if business is slow. Is your business growing and expanding? Do you want to add a division? Are you thinking that all this time at home is great and retirement is closer than you had anticipated? Let’s take a look at some possibilities.
Are you looking to buy?
While the thought of expanding prior to COVID-19 may have been put on hold and the timeline for closing may be extended, planning for the time when this purchase can be finalized is a good use of time. How has COVID-19 affected the reasons why you wanted to purchase this particular business or asset and how has it impacted the value of the transaction—for better or for worse? Focus on what potential it can bring to your current business or your future business. This analysis can also help decide on a new or revised timeline for when the expansion may take place. Now may be an even better time!
Building out the business plan that incorporates this new company will be extremely beneficial down the road, and the time spent positioning your business for this acquisition will put you ahead of the game. Creating the plans and processes to integrate a new division or business into an existing one is sometimes overlooked, but always a needed item. Do you have a payroll process that you enjoy? Does the target business have one as well? Thinking critically and broadly about systems integration and the process for moving employees to the post-closing systems will save you from big headaches in the long run.
Looking to sell?
Selling a business can be a significant undertaking, not only with respect to the time needed to prepare for the business side of the deal, but also for the emotional side. This is a life-changing event for sellers. Now may actually be the perfect time to prepare.
Prioritize your goals for the sale: Are you ready for retirement? Are you looking to start a new business? How has COVID-19 changed this? This is important not only for understanding why you want to sell, but also for a potential buyer. If the value of your business has gone down due to the pandemic, does staying on as a consultant or employee help you make the sale now but still meet your retirement goals? This can be attractive to Buyers and make a difference in the terms of the deal.
Finding the right buyer can be similar to courting a new customer. What can you do for them? Why should they pick you? What product or service that you offer is competitive and tempting enough to convince them to pay a premium? Strategically thinking about who a potential buyer may be can help make sure you position your networking and marketing efforts to the right places to find the right buyer. How has COVID-19 affected your competitors? If you would not be willing to sell to a competitor, thinking about who you would sell to, and therefore market the potential sale to, will help you sell your business for the best price.
Invest the time to make your business look more attractive. Create projections and action plans with timelines. Do you have consistent income figures or does it fluctuate? Assess the current value of your business, have you had significant growth periods that will be easy to replicate when the post-COVID economy is going strong? What are some positive patterns of growth or sales that you have had, these types of trends and statistics are important to show why your business is being marketed at a certain valuation.
There are various different ways for valuing businesses. One method is based on a multiplier of EBITDA (Earnings Before Income, Taxes, Depreciation, Amortization); valuing based on the assets is another. A business broker or appraiser may be able to help with this process if you are struggling. The most important piece is recognizing a price that is fair and reasonable in the marketplace.
Preparing all the due diligence items, including accounting records, business contracts and organizing your records is a huge undertaking that most sellers overlook. Gathering information now, or even making a list of high priority items and their whereabouts, will save you significant amount of time down the road. You will want to have the past few years’ records of tax returns and financials. If you are selling equipment or other tangible assets: put together a list of what you want to sell. This will streamline any needed inspections and keep your thoughts straight in what is being sold and what is not. Create a list of contracts that are essential, including customers, vendors, and suppliers or otherwise. Having copies of these contracts readily available will make the due diligence process much smoother.
Buying or selling a business can be a huge undertaking. If this is something that you considered prior to COVID-19, preparing for the future can be productive during these uncertain times.