Planned to Sell or Exit Your Business in 2020—What To Do Now?

One question that comes up in many of our conversations with business owners is, “when is the right time to sell?” The answer typically is “when everything is going well.” Many owners were having conversations with potential buyers in 2019 and early 2020 when the economy was strong and business value was high—then the pandemic hit.

As many experts will agree, M&A activity correlates closely to economic trends. When the economy is in an uptrend, businesses are buying other companies to gain market share, increase profits, and grow revenue. Many deals happen at attractive valuations. Once a recession starts, like what we experienced in 2008 however, acquirers pull back and wait, acquisition volume slows, and valuations typically contract.

The good news, if you were contemplating an exit or sale of your business in 2020, there are ways you can set forth an even better game plan. The same factors that are creating challenges in the business world are also creating opportunities for an abundant future. Companies that are weathering changes, retooling plans, and working hard to preserve their business value now are those that are finding a surge of clarity as they return to their plans to sell or exit the company.

Consider these 3 elements if your exit plans have changed:

1. Avoid forcing and rushing into a sale or exit: The sales process tends to go smoothly when a seller has taken an adequate amount of time to prepare for the sale. This can vary depending on the business, but anywhere from 18 to 24 months of preparation is not uncommon. Panicking and rushing into the sale could hurt your potential outcome because it may be possible to build your business far beyond where it stands now, increasing its value in a substantial way. Planning an exit takes much strategy, time, and detail. If you put your effort into making the operations airtight, you’ll have a better chance at selling your business at your desired price point. Move carefully and in a credible way to make your business as attractive as you can, showing the buyer that you are going to lower a their risk and raise their future earnings. Rushing into a sale may derail these plans.
2. Failing to determine your reason for selling:
   Many owners fail to think about why they are interested in selling their business. Money can cloud the decision and make it harder to see the bigger picture. Is the desire to retire, gain retirement income, transition out of a position, or pass on to the next generation? Waiting to sell is sometimes motivated by successors or lack of potential successors. Owners without succession plans, may need more in-depth planning prior to the sale and divestment of the business. If you are not clear why you are selling, make sure you understand your rationale and then formalize a strategy and plan to move that goal forward with a successor or buyer that has your same business philosophy.
3. Focus on your business fundamentals:
   Right now is the time to truly stay focused on what makes your business valuable. Focus on your customers and serving them in our “new normal”, engage and motivate your employees, and ensure your supply chain stays strong in these volatile times. Showing buyers that you are profitable is certainly a good first step but if you can show them that your profits are still increasing, that will certainly drive up the price they are willing to pay. Look for new ways to cut costs or create efficiencies that will give your business that extra profit boost. A potential buyer will want to know:

• What steps were taken to manage cash flow during the pandemic?
• How did your business perform during lock downs?
• How did COVID-19 impact your financials?
• Will the pandemic create any permanent changes to your industry?

The more you lower a potential buyer’s risk, the more they understand your business and the customers you serve, and the more they understand the future position of the business, you will in turn, generate more value when it comes time to sell.

Whether it’s understanding the process of building company value, how to find a buyer or businesses to acquire, or how to exit your business successfully, B2B CFO® is here to help as your trusted business and CFO advisor.

For more information, and to schedule a discussion, email: ArtBottoms@B2BCFO.com