How will COVID-19 impact the value and sale of my small business?
COVID-19 aside there are many owners who will still need to sell in the coming years.
So what’s going to be different for them?
I’m not underestimating the very real challenges small business owners have to currently manage.
In many businesses and industries, it’s a fight for survival.
But those same challenges don’t alleviate the need for any business owner who had been or continues to contemplate selling to actively plan.
In this article I’ll revisit some of the basics of Active Planning, and also outline the positive and negative factors arising from COVID-19 that owners and their advisors now need to factor in.
What is active planning? And what are the key steps?
Active planning means always being ready to sell.
If you are ready to get active about planning the sale of your business there is a long list of things you need to do.
Here are some of the key ones.
Work out the potential value of your business.
Quality, independent advice is needed to do this.
If you want to know more about the pro’s and con’s of getting good valuation advice read my recent ARTICLE .
The end game with good, independent advice is twofold;
- Establish potential sale value today, and
- Pinpoint how you can improve the potential sale value. Some of these potential improvements will require time to implement, so the earlier you start active planning the more time you have to increase potential sale value.
Work out a business continuity plan.
A major concern for most buyers is ‘what happens to the business when the current owner isn’t there anymore?’
So you need to come up with a plan to ensure the business;
- Doesn’t fall apart when you leave,
- Can be transferred and easily managed under new ownership.
Make sure you can transfer key business assets.
You need to ensure that key business assets like premises lease, supplier agreements, staff, intellectual property can be easily transferred.
Develop a business sale communication plan.
There are lot of people who will know about, or be directly impacted by, your plans to sell or the actual eventual sale of your business.
All these people, including staff, suppliers, customers and your ‘nearest & dearest’ can have a major impact on the success of your sale.
Most of the time far better that you make these stakeholders aware of your plans to sell, at the right time, rather than them finding out ‘third hand’. The key to this is releasing the right information at the right time.
Pull together a trusted and competent active business sale planning team.
At various stages of your active planning and assessment of the different options you will need the services and advice of an Accountant, a Lawyer, a business consultant, possibly a business broker, and other specialist experts. You need to make sure they have up to date experience. Unfortunately this may not be your current Accountant or Lawyer or other professional advsier. Getting the right team together can take time. It’s an investment you need to make though, as the team will have a huge influence on the success of your active planning.
Ensure you have a clear personal plan separate to the business.
The active planning process always has some bumps. Having a clear personal plan outside of business can help you through the hard times.
But Active Planning also means having other options where a sale isn’t possible.
Achieving a clean, 100% sale of your business at a time that you determine has always been hard. Throw in COVID-19 and it’s getting harder by the day.
Options other than a clean, 100% sale for owners to consider.
Here are 4 potential alternatives;
- Retaining the business but scaling it back to a size and complexity that suits you,
- Retaining the business but bringing in a business manager to run the business day to day,
- Selling a part of the business and remaining involved but with lesser day to day responsibilities,
- Agreeing to sell but in ‘chunks’ over a number of years so that you can have an ongoing involvement and a staged exit.
I’ve worked with owners to implement all 4 of these alternatives. The common thread was that they all evolved out of an active planning process, and they needed time and quality advice to implement successfully.
COVID-19 factors that will impact your active business sale planning.
I’m no futurist but I’m now going to share some thoughts about what might be different for selling owners in the coming years specifically because of COVID-19. The list includes both positive and negative factors that will impact;
- Small business sale values,
- Sale timeframes, and
- The types of buyers and what other options you consider in your active planning.
In each case I have included 1 practical tip to help you with your active planning.
| COVID-19 FACTOR | BUSINESS OWNER TIP | |
| POSITIVE (+) | ||
| More disgruntled, dissatisfied employees become business owners | Identify and court an employee (or group of employees) as buyers | |
| Competitors fail so your business thrives | Take the time now to restructure / remodel your business | |
| Major industry and supply chain restructures and rationalisation | Be prepared for a ‘knock on the door’ from a larger business wanting to buy you | |
| Investors exiting property and equities in search of better returns | As potential buyers their biggest gap is a management team to run the business – address that early in any discussion to validfate their capacity to do a deal | |
| NEGATIVE (-) | ||
| Availability of business finance and lower real estate values (used as security) | Get familiar with Vendor Finance i.e. owners helping finance buyers, as this may become the key to getting your business sold | |
| The sudden dip in revenue and profits from Covid19 | Provided you can back it up with evidence that your trading is trending back to pre-Covid19 levels the Covid19 inspired dip is a once-in-a generation, one-off event that doesn’t impact long term business value | |
| Reduced confidence & increased uncertainty across the economy | If you don’t have to sell your small business don’t – it may be the best investment available |
If you know it’s time, then you don’t need to let COVID-19 stop you from getting on with your active planning.
I hope the tips in this article help.
We like helping owners get active on planning their next steps.
All the best, Michael
If you want an expert, independent, you-centric assessment of your options then