Broker
Edison Business Advisors
There is no doubt many business owners are operating at less than full capacity, or possibly not even operating at all, due to the Coronavirus restrictions. History tells us there will be three scenarios:
- For some business owners, this downturn will put them out of business.
- For many of us, we will pull things back together and fight on through the recovery.
- And, for the select few, they were likely unknowingly in a position to prosper from these historical events.
We know this because we've been there before. The 1990 oil price shock, the dot com bubble and 9/11 in 2001, and the subprime mortgage bubble in 2007, all national downturns we've lived through in the past 30 years. And don't forget local downturns caused by hurricanes here in Florida. We've had our share of these as well. In fact, Hurricane Irma in 2017 is sitting prominently in my immediate rearview mirror here in Southwest Florida.
Let's take a look at each of the three scenarios and how Edison Business Advisors is available to help:
Scenario 3:
If you are fortunate enough to fall into the third scenario, you are likely too busy right now to even consider selling. However, I would bookmark 2021 because your 2020 financial numbers are likely to be the best you will have for quite some time. If you would like a complimentary opinion of value based on your past financial performance and/or expected future performance during this downturn, contact us and we'll help you realize your potential.
Scenario 1:
If you are among the unfortunate who fall into the first scenario, you may need assistance with selling off your assets. I want to assure you that Edison Business Advisors is here to help. We have developed a program to help you quickly transfer your assets at a fair price and reasonable terms to either competitors better suited to weather this storm, a customer, or someone in your supply chain. And, if we can't help you, we'll refer you over to someone who can.
Scenario 2:
For the majority of us, we'll grab our bootstraps, pull them up and get back to business as soon as the "all-clear" signal is sounded. Whereas many might think that the depressed financial performance during this time might prevent a sale, in reality, the downturn should provide equal or greater opportunity to execute a sale. Here are some pros and cons for selling your business coming out of a downturn:
Pros:
- You have time to prepare. Given most of us are operating at less than full capacity, there is finally time to pull together your financial statements. There is time to separate out the personal expenses from the business expenses to the penny. There is time to make subtle changes to your business in order to remove operating practices that may inhibit a sale and to operate more efficiently and effectively once the crisis is over. Edison Business Advisors can help you identify inhibitors and help you improve your business making it more sellable in the short and long-term.
- Cheap money will be available. Interest rates are low, banks are eager to lend, and there are unprecedented programs for buyers. With the prime rate at a near historical low of 3.25%, business buyers have access to cheap money. And as an even greater incentive, the Small Business Administration 7A loan program has announced that anyone who closes on a business acquisition loan on or before September 27, 2020, will receive their first six months of loan payments for free. That is a 5% discount on the price of the loan. If you aren't thinking about selling, you may want to think about expanding your business by buying. This is certainly a historic opportunity whether you are buying or selling a business.
- Landlords are likely to be far more flexible on lease rates and terms. Recently, in our good economy, we've seen landlords become very difficult to deal with when it came to negotiating lease transfers. Many were attempting to leverage the situation to significantly increase lease rates for buyers. As with prior recessions, many businesses will fail and commercial space supply will greatly outweigh demand. This presents an opportunity to negotiate lease rate reductions at longer terms. For the first time in many years, the lessee has the upper hand over the lessor.
Cons:
- Valuations will be challenged by buyers. Sellers and business brokers will treat the COVID-19 downturn as a one time "special cause" event that should not be considered when valuing a business. Buyers will look at the situation differently. They will look at all businesses coming out of a recession as risky. With added risk comes a reduction in price in order to mitigate the buyer's risk. Creating the right story and demonstrating a reasonable path to past performance will be important to reducing any discount a buyer will place on the price of the business. Again, there is no better time than right now, when you are running at reduced capacity, to think about your story and preparing a business plan for your return to normal financial performance.
- There will be significant competition in the market. As with past recessions, there will be many businesses that fall into Scenario 1. Some of these businesses will make it to market and their assets and customer lists will be snapped up at huge discounts or ridiculously favorable terms by competitors, customers, supply chain collaborators, or opportunists. There will also be business owners that simply give up and exit at unfavorable terms. They won't have the fight in them to negotiate long and hard for a fair price. They'll just want to move on into retirement or their next venture. Many buyers will look past your strong business to snap up these opportunities. Again, this is why taking the time now to craft your story and preparing your plan is so important.
Certainly, we are facing another downturn in our economy. But, we have been here before. There is no better time to plan your future than the present. Especially since you aren't using your downtime for vacations, family visits, etc.. Feel free to give me a call at 239-738-6227 to discuss your story and your plan. Edison Business Advisors are here to help.
