Should you sell your business or hang on?
We live in strange times, and the impact of COVID-19 has had perhaps the most significant economic impact on small-business owners.
Whether your business was impacted financially or not, it may have you thinking about selling. Selling a business is a significant decision at any point, but it’s a decision that looms even larger in the pandemic context. Here’s what I think are the top four things to consider if you are trying to decide to sell or hold on a little longer.
Buyers always want to know why the business is for sale. Especially during COVID-19, buyers want to see if it’s because of hardship. Buyers are looking for openings to strengthen their negotiating points, so knowing your why is essential. Having a why that is not a hardship will allow you to be patient in negotiations.
Sometimes hardship as a sale reason is unavoidable. Going into the deal with your eyes open to that is essential. If your why is within your control, it will help you hold out for a transaction closer to your asking price.
Most buyers will require some form of funding to complete a purchase. If the buyer is seeking financing from a bank, you as a seller have to consider whether a banking scenario supports your asking price. If the bank does not support your price based on your business’s financials, then in a buyer financing scenario, you have two choices.
One, adjust your asking price to a level that a bank will support. In regular times, this would be your best path because this is likely an adjustment to the real value of the business. However, your business may have had a COVID-19 impact in the short-term that would affect bankability.
Or two, offer seller financing. Buyers love seller financing because it shows confidence in the business from the seller.
Is anybody buying businesses right now? In short, yes. Buyer activity was slow during the initial months of COVID-19 but has returned, which means some of the buyer advantages have been lost. Multiple parties looking at your business creates higher offers.
Buyer activity right now is heavily dependent on how impacted your business has been and how much risk your business might be exposed to going forward. Market inventory is currently low on essential companies. Suppose you have a crucial business, one that would operate at full capacity regardless of the pandemic. In that case, you could command a premium right now due to market scarcity and buyer demand.
On average, a business sale takes eight to nine months to complete from the time of listing. The listing process can be up to a month, so nine to 10 months on average. Of course, if you are over the average, it could easily take a year or longer to complete the sale. Selling is a long process with several buyer interactions, so it is essential to start the process before you are ready to leave it. If you are prepared to leave the business tomorrow and have not listed it for sale yet, you will be tired and weary by the time it sells.
Of course, this is not an all-inclusive list of factors you might consider when deciding to sell or hold, personal factors weigh in heavily in these decisions.
To paraphrase the poet Whitesnake, many entrepreneurs go down the only road they’ve ever known, and like a drifter, they walk alone. It’s best to seek some trusted council when weighing out the options and finding the best path forward. Whichever route you choose — sell or hold — it’s crucial to commit 100% to that path to ensure success.
Brian O’Connell is the owner of Transworld Business Advisors of Northwest Arkansas, specializing in small business sales and acquisition. The opinions expressed are those of the author.