Even as businesses acclimate to the new normal, lingering personal health concerns or questions about the state of the economy may be signaling to some business owners that now is the time to explore an exit. Selling their business may be among the most difficult decisions that business owners have to make, but ultimately if it feels like the right move, it’s may be the right one.
Selling your business during a pandemic may feel like some impossible feat, especially when you're looking for a price you feel you deserve. But many experts say that it can be done.
Is there a market for selling businesses right now?
While the pandemic has hurt the economy, it’s also generated a new market of buyers: ex-executives seeking to invest in new ventures.
“Many people have lost their jobs and those jobs are not coming back, so an alternative is for them to buy a business for themselves,” Monroe says.
If they can’t land a loan with the Small Business Administration or are unable to find business loans anywhere else, Monroe suggests offering seller-financing. (It's a tactic he's used himself.)
“For example, if the business being sold was for $500,000, the seller may require the buyer to put $100,000 as a down payment, and the seller would finance the balance for several years while the buyer works with a bank to get new financing,” Monroe says.
How do I sell a business during a pandemic and still get the price I think I deserve?
“This is always the biggest problem in business sales,” says Scott Densmore, a business broker with The FBB Group, Ltd. in Littleton, Colorado. What you think you deserve and what buyers are willing to pay doesn’t always match up.
“Business valuation is part art and part science. Most buyers are financial as opposed to strategic,” Densmore says.
That’s why documentation is so important. Densmore says that you’ll want to show sellers anything you can to make a case for your price—namely, your profit-and-loss statement, your balance sheet and your cash-flow statement.
“If you can clearly document the drop in revenues as being a ‘one-time event’ in your internal financials, it is possible that you will not take a hit on the sales price,” he says.
If I have to take a hit on the sale price, how low should I go?
“It depends,” Densmore says. “Do you expect sales to return to normal, and is it documented, and would the story make sense to a buyer and a lender? Is it you that isn't bringing in the customers, or is it a government-mandated shutdown that is keeping them away? Is your industry going under—or is it just you?”
Densmore's firm recently sold a restaurant in Colorado Springs that was approximately the same as its pre-pandemic price. Not every restaurant will be able to do that while the coronavirus is running amok, he acknowledges, but he says there was a good reason the seller was able to get the desired price: “It’s an historic restaurant in a great location that was doing well before COVID and is expected to do well after.”
Bottom line: Just as in normal times, you want to sell for as high a price as you can get, which may not be as high a price as you want. The market will do what the market is going to do.
When should I liquidate the assets instead of selling the business?
This also depends, according to Densmore.
“Do you have an equipment rental company with $500,000 of equipment and your business earns $100,000 a year? Then likely yes, sell all of that equipment and close your doors,” he says.
But if you have a business with $200,000 of equipment or inventory and your business is earning $300,000 a year, then Densmore says that you should instead sell your business with the assets.
Of course, you may feel that the decision has been made for you. If your business is constantly closed due to the virus, you may feel that you have little choice but to liquidate.
"Typically, an asset sale is a good choice for a business owner that has a business that is not making any money, such as those that have been hit hard by the pandemic," says Adrianna Smith, who runs business brokerage The Biz Hotlist with her business partner Lana Hout in Los Angeles. (Smith cites restaurants, salons and gyms as examples of companies that may need to do an asset sale.)
If that's your path, Hout suggests working with a business broker or transaction intermediary—they can likely help you get more for your assets than you would on your own. But if you are going to do it without help, Hout advises, "Don’t overprice the assets in place as this will detract buyers from looking at the opportunity."
Hout advises doing your research on how much the used equipment that you're trying to sell costs. She also suggests disclosing anything about the assets you plan to sell, such as recent repairs, "to minimize future liability."
"If you are just selling equipment, furniture and fixtures," Smith adds, "you can post it on Craigslist, eBay, trade websites; hire an asset liquidator or do a clearance sale at your place of business."
You might also need to consider bankruptcy, not necessarily as a way to end your business but to regroup and live to fight another day, says David Reischer, an attorney and the CEO of LegalAdvice.com.
“It’s best for any seller of a business right now to try to hold on unless the diminished cash-flow makes holding on impossible, in which case, there is always the option of Chapter 11 bankruptcy reorganization to allow a judge to work things out with creditors and hopefully come out in a stronger financial position down the road after the pandemic subsides,” he says.
As for whether Chapter 11 is a good idea is a topic of discussion you’ll want to have with your business attorney and accountant.
But as Reischer sees it, “Restaurant and other retail-sensitive businesses will likely find no buyers right now and may even be illiquid, so there really is no opportunity to sell anyway. Bankruptcy is a real and viable option to protect a business in the interim.”
And getting through the interim and protecting your business as much as possible during this pandemic, whether you’re selling or not, is the goal.
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