Market trends have changed and become unpredictable as people’s lifestyles have needed to adapt to various restrictions; work practices have changed, with more people working from home; the demand for certain products has boosted some sectors whilst there is significant downturn in many other sectors. So, many are asking, is this a good time to sell, with so much uncertainty and unpredictability.
What are the reasons for selling a business?
There are many different reasons for someone to come to the point where they are wanting to sell a business. For most, if not all, selling a business is an emotional event and not a decision made lightly. It can often mark success or failure to accomplish what was set out to achieve. Most business owners have worked hard for many years, putting in a lot of time, money and energy, in getting the business to where it is. A business can give community and purpose, so making a decision to sell is not easy.
When it comes to selling, it is time to work out what the reason is and to be logical about the decision. The reason may be to do with personal health, burn out or retirement: basically, where the owner comes to a point where they no longer feel they have the energy or motivation or ability to continue running the business. It may be the reason for selling has to do with other interests, family matters, the need to have more time or money to invest in other things. On the other hand, the business may be going through a downturn and the owner wants out before things get any worse.
Timing is of the essence
One of the most important things, with all the preparations needed to sell a business, is timing. Timing can make all the difference to getting good value for a business, both for the seller and the buyer. However, this is dependent on the circumstances, where the business is at and the prospective for that business. Buyers are looking for something that will be of value to them in the future. If a business is sold on a downturn, it is difficult to get a good price. That is as true in a pandemic as out of a pandemic. That’s not to say it is the wrong time to sell a struggling business at this time, but it is good to look into all the options.
Sell now or hold out for longer?
It is good to look at the full picture when considering a sale. When the owner feels no longer competent to run the business, due to ill health or other issues, then it is a good time to stop. If the business owner continued the result would be a devaluation in the business. However, if the business owner still has the resilience and resources to continue, it would be good for him to assess the situation and make strategies to weather the pandemic storm. Out of this, the business can come out stronger the other side.
“There has been a lot of impact on businesses during this pandemic” says Stefano Endrizzi, the Founder of MergersCorp M&A International, “As you can see from our established businesses for sale, Some have hardly been functioning, whilst others have never seen it so good. Those who have had little, or no business, will find it difficult to sell over the next year, until they are able to show they are back on track. Maybe they will need more in order to get a fair price”
Making the Right Preparations
However, all is not lost, even if it is necessary to sell a business during the pandemic, when business is tough. More than at any other time, preparing a business for sale can mitigate the uncertainty that prevails. Obviously, a buyer will be more attracted to a business that has been less badly hit. However, good management of a business will also impress, especially if there are well thought out strategies for making a recovery.
“We have helped many businesses at this time make a good sale.” We are interested in helping businesses make the right preparations so that they can make their business worth more to the buyer. This includes making analyses of the market and creating good strategies to adapt to the present situation. It’s as win-win situation for both the buyer and the seller.”
Evaluating a business
There are many ways to evaluate a business. At the end of the day, the value is only what a buyer is willing to pay for it.
As a starting point, the assets can give a value to the business. These are worked out by simply adding up the value of everything owned by a business and taking away the debt and liabilities. However, a business is so much more than any of its assets, which in some businesses, can be relatively small. There is the customer base, reputation and ability to earn money. Here are a number of ways a business is evaluated:
Sales. For different industries a typical multiple of the annual sales is used to determine the value of that business. These multiples are worked out by a business broker.
Earnings. The price to earnings ratio uses the earnings of a business to determine the value of the business, by multiplying it by the relevant multiple. Buyers are usually more interested in the amount they earn, making this a more relevant measure.
Future cash flow. The discounted cash flow formula predicts future cash flow at a present-day value. This is a very useful method for evaluating a business.
Whilst the above methods give a basis, every business is different. Mergers can also add more worth than the sum of the individual business. Careful negotiation and planning are at the heart of a good deal. More than ever it is important that a business owner gets good advice and help through the process.