Are you Out of your Mind?!

Are you out of your mind?

I've been chatting with business brokers throughout North America during the past four months exploring the impact of COVID 19 on business sales. One of the interesting findings is that sellers are anticipating a selling price based on pre-COVID performance. Now this may be wishful thinking on behalf of sellers, but it's not difficult to see why buyers are uttering, "Are you out of your mind?"

2020 financial performance in many cases lags behind 2019 and there is still great uncertainty to the timing of a recovery and the speed of economic recovery. The increased uncertainty alone is enough to bring business values down.

We've been asking sellers how they arrived at the list selling price. Those who are working with business valuation experts often respond with a reasonable methodology. Those working with unsophisticated advisors or DIY are often twisting in the wind when asked to explain how they arrived at their asking price. Their answers are diverse, sometimes humorous and almost always not tied to any generally accepted methodologies.

Here's a quick summary of what we have learned so far:

1. Can always find a buyer for a business with good fundamentals, even if they have had a revenue / earnings dip as a result of COVID 19
2. Deals are getting done but the deal structure has changed
3. Lenders are gun shy, especially if buyer does not have industry experience
4. Need good negotiating skills as buyers' offers assume distressed sale
5. Buyers are out there. Some are looking to "buy themselves a job", whereas others are more strategic in nature
6. Even distressed businesses can be sold if "there's a pony in there"

Sellers are being advised to build value in their companies by making the businesses as independent from them as possible. It's almost like a parent needing to shoo their children out of the house when the time has come for them to be independent adults. Business owners often treat their business like their baby. One of the challenges is that unlike the human baby, the business baby doesn't naturally go through the terrible 2's or rebellious teenage years exerting its independence and becoming its own self.

Succession is essential for the legacy built in the business to continue. Business owners eventually MUST exit their businesses - through retirement or by death. Planning for the exit makes it much easier on the successors, team members, clients, suppliers, professional services and exiting owner. Plan for taxes, plan for after-tax cash, plan for financing retirement, plan for financing of the sale / succession and plan for continuity and growth of the business under new leadership.

Laura Bechard, CPA, MBA, M Ed, Value Builder and Change Management Professional is a family business and succession expert.

Laura's clients increase the value of their businesses by implementing strategic initiatives designed to build a "hands -off", sellable, sustainable business with more reliable cash flows.

Discover the estimated value of your business. Take your complimentary business assessment today!