Business has been slow to non-existent; your clients are pulling out of projects due to the stress of COVID-19; you’ve had to cut back on resources, lay off employees, apply for government assistance, and skip the payment on your office rent. You probably held on to hope in case there’s the slightest chance that things get better, but it’s been four months and everything is more or less the same. So, now you’re considering your last option: shutting the doors to your business.
Does any of this sound familiar?
Let’s face it, not all companies will make it through this pandemic. Right now, it’s estimated that around 43% of small businesses will be forced to close their doors permanently because of COVID-191. If your company is struggling to survive, then you’re faced with some tough choices. A lot of companies will look at the financial reality and decide that closing the doors is the only option—it’s not.
Keep in mind, by shutting doors, you won’t gain anything, but if you choose to sell, you will get something. Selling your business is not always about money, especially in these uncertain times. For a sole proprietor or a start-up entrepreneur, it could be an opportunity to continue your legacy, provide employment to those that rely on you, or make a difference in your community.
It’s in your best interest to sell your business now and get whatever you can—it’s a solution that capitalizes on the years of hard work and dedication you spent building your business. But, before you do that you need to become ready to sell your company.
Here’s a checklist to help you prepare for what’s coming if you decide to sell your company:
Get a market valuation of your company. Get a valuation done for your company by a credible third-party to determine a realistic estimation of what to expect. For a set fee, a valuation and financial advisory firm would be able to do a competitive analysis, assess your assets, outstanding debt, financial health, market conditions and other variables to provide a fair value. Usually, a small business is worth anywhere between three to six times its annual cashflow.
Work with an accountant. Before you sell, it’s important to clear up any discrepancies in your financial statements. An accountant help you with that. Most importantly, do not keep any personal assets in your business books. It’s a red flag to any new buyer. Keep your financial statements as clean as possible, ready to be presented to any potential buyer without raising any unwanted questions.
Find a business broker. While you might be good at running your business, you may not necessarily be good at selling your business. For a commission on the sale price, a business broker will play the intermediary, help you structure the deal, and also find suitable buyers for you.
Vet your buyers. When you get an offer, don’t let your excitement get the better of you. Vet your buyers, check their backgrounds, ensure they’re credible, a strong culture fit for your company, and share similar, if not the same, vision/goals for the company. Again, a business broker can help you with this. Trust is an important factor when selling your business; after all, you’re giving away your life’s work.
Hire a lawyer to help you with your business contracts. A lawyer represents your best interests in any deal, and it would be wise to have someone look out for your financial wellbeing when selling your company. Moreover, selling your business involves complex contracts such as the asset purchase agreement and the contract for the sale and purchase of business assets, including physical and intellectual property, if applicable. A good lawyer will get into the nitty-gritty of the wording in the contract and look out for you to ensure the sale terms are favorable.
Having said that, there are plenty of companies out there who are big on corporate social responsibility and want to invest in struggling businesses to provide employment in these tough times and to ensure SMEs continue to be the heartbeat of the economy. It’s the philosophy of how companies “pay if forward.”
Here’s the catch though: according to Harvard Business Review, 70% to 90% of acquisitions fail. A successful transaction involves a lot of complex factors—no two deals are the same. It’s really important to find the right fit when you intend to sell your business. This is where a business advisory firm like Evolve can help you navigate through the complexities of the deal, negotiate on your behalf, and result in a successful transaction that works in your favor.
If you were thinking of selling your company before COVID-19 hit, then time is of the essence because the pool of potential buyers is limited. There are plenty of buyers out there looking for opportunities, but as we said before, you have to act quickly. But, don’t do this alone. Look for a partner to guide you through this process who sees the value of your business and specializes in SME transactions. If you’re a small business owner, you’ll do better with a boutique firm like Evolve that will give you a more personalized and empathetic service, unlike a large corporation that’s only interested in executing the transaction at any cost.
If you’re looking to sell your business, we can help. Our team of experts will not only guide you through the process, but also mediate on your behalf and find the best buyer for your firm. Contact Evolve Business Advisory today for a free consultation.