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Is Now the Right Time to Sell? M&A Considerations During a Pandemic

Whether you are just starting out in your business or well into your best years, today’s M&A market is soaring with opportunities for both buyers and sellers.

EGUIDE: Exit Paths for Business Owners

Many companies are unexpectedly being approached by buyers with offers they could never have imagined.

  • Are you a business owner exhausted from navigating all of the changes this past year has brought and ready to call it quits?
  • Or are you looking to sell and move in another direction?

Whatever your situation, it’s important to not be blinded by dollar signs, but understand what a sale transaction could mean to you, your family, and your employees.

My first bit of advice is:

MAKE SURE YOU ARE PREPARED!

You may be asking, what does “be prepared” mean? Well, there are steps business owners should take to ensure the decision they make is the right one for their business.

  1. What Does Selling Your Company Mean for You Personally?

First, you must decide if selling your company means you retire to afternoons of golf, traveling the world (when the world is ready again), or finding another company to purchase that you dedicate your new found time to growing and making successful. This is a tough decision, as many business owners may have never considered what life after their company looks like.

  1. How Does Your Business Value Impact Your Financial Picture Post-Sale?

Second, have a good solid understanding of your financial plan, after you have decided what direction your future holds. It is extremely important to have a plan in place so you know if walking off into the sunset is even an option.

Many people do not consider the costs the company may have been bearing, which could fall on you as an individual when the company is no longer there. Some of these expenses may include:

     -health insurance

     -life insurance

     -and often times the owner’s vehicle and associated expenses.

These can be costly additions to your monthly expenses. So having an understanding of how much you need monthly for the estimated remainder of your life is a crucial planning step. This will also help you in determining how aggressive you can be in your investing strategy post-sale.

You should also have an idea of what your company is currently worth. Without this knowledge, you could be selling something that has far more value than you realize, or your business value could fall short of your expectations.

Keeping your financials “clean” and up-to-date will better help someone determine a value and provide confidence to a buyer that you are not hiding something. You may also want to consider having a financial review or an audit prepared to provide an even higher level of assurance. Contact an accounting professional experienced with M&A to guide you through this process.

In determining your company’s value, you can often times discover weaknesses and risks within your organization that can be addressed well in advance of a buyer approaching you.

EGUIDE: Company Valuations - Understanding Valuation Methods

These could include customer or vendor concentrations, working capital concerns, or lack of a management team in place, which often ensures a smooth transition. Companies with solid management teams that are less reliant on the owner are often valued much higher than their competitors. Often times these managers are locked in with strong bonus plans that help the company achieve their goals. Some companies even offer “stay-on” bonuses if ownership changes.

  1. What Type of Buyer is Best for Your Business?

Next, you should be aware of what type of buyer may be best suited for the company and whether that fits your overall goals.  

There are strategic buyers, that are similar-type businesses or competitors, who often times offer a higher price, but may downsize your staff by merging many positions and roles into their organization. If you are a small closely-held business, this may not fit your plans.

EGUIDE: Advantages and Challenges of a Third-Party Sale

There are also private equity firms that may own several businesses and have large amounts of capital available to invest in your company, which could scale it up to a much higher level by investing in additional or better equipment, technology, and people.

You may also consider an “inside” buyer. This is generally one or more management team members. They often have a good understanding of the business and the people, but do not have funds available to allow for traditional lending and require a higher level of “seller-financing”.

EGUIDE: Transferring Your Company to Key Employees

Although a higher level of understanding of the business makes this less risky, there is still concern by sellers that they may not receive their full payments due to unforeseen future economic conditions. However, these buyers could continue with your legacy of keeping your company and your employees intact.

As you can see, there are many things to consider when making a decision on when the right time is to sell, many of which have not even been addressed in this article such as tax implications, deal structure, and legal considerations. It becomes important to bring in the right professional to help you navigate the many decisions.

So whether you are currently looking for a buyer, one just happens to fall in your lap, or you’re not even considering a sale at this point, it’s important to understand and know your options, your goals, and your vision so you can be prepared at any time in the event an opportunity arises.

BIZ TIP TOPIC EXPERT: NANCY MEHLBERG, CVB, EA

NANCY MEHLBERG, CVB, EA

Nancy is a Principal with SVA Certified Public Accountants, S.C. and member of the Business Advisory Services group. She helps clients improve their company profitability and protects their interests by clearly understanding their future goals. She works closely and proactively with clients with an emphasis in business and income tax planning and financial reporting.

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