Selling your Business in the COVID- 19 Crisis: Why It is Still a Good Time to Sell 

Selling your Business in the COVID- 19 Crisis: Why It is Still a Good Time to Sell
By, Otis Florence

It is still a good time to sell your business in spite of the chaos created by the COVID-19 virus.  In fact, your business may be worth more now than ever before.

Selling your business in the midst of Covid-19

Many sellers are making two terrible assumptions right now, and I want to set the  record straight.

  • First, DON’T assume that the economic impact COVID-19 has had on your business is going to make it worth less.
  • Second, DON’T assume no one will want to buy your business at a time like this.

Both assumptions are absolutely false.  Here’s why:

Your Business is NOT Worth Less than it was Pre-Pandemic.  It May Be worth More

Businesses typically sell based on a multiple of Adjusted Cash Flow, EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization) and/or Sales. The key consideration here is the fact that financial results are Adjusted.  That simply means they are normalizing for non-recurring events.  

The World we know has never seen or reacted to a pandemic in the way it has COVID-19.  We believe lenders, buyers, and the market as a whole will apply the same adjusted analysis to all financial results impacted  by COVID–19.  There is a strong case for adjusting financials due to this extraordinary event.  Your business is worth just as much as it was pre-pandaemic. 

Was your business in any way deemed “essential” and able to continue operations, during state-mandated shutdowns?  If so, we would make the valid and logical argument that your business is worth even more than it was before the outbreak.  Even if sales were down, it demonstrates that your business has key intrinsic value as well as the infrastructure necessary to weather a future crisis. 

Not all business will survive the crisis, but there will be just as many if not more buyers in a post-pandemic market.  Displaced workers and those who fear future displacement will join the pre-existing pool of buyers.  This may well create higher demand for a more limited number of opportunities.

 Business Buyers Are Still Looking to Buy amidst the COVID-19 Pandemic

There are a number of reasons why.   

  1. SBA Debt Relief efforts are incentivizing Small Business Lenders and Buyers. “As part of SBA’s debt relief efforts, The SBA will automatically pay the principal, interest, and fees of current 7(a), 504, and microloans for a period of six months. The SBA will also automatically pay the principal, interest, and fees of new 7(a), 504, and microloans issued prior to September 27, 2020.”   

This is a huge incentive.  Never mind the fact the the SBA will make your loan payments for the first few months.  Let’s just consider loan fees.  When the SBA guarantees a loan, it charges the buyer a fee for doing so. That fee is a percentage of the loan amount.  Instead of going into excessive detail here, we will simply use a $1M SBA guaranteed loan as an example.  The guarantee fees alone would be about $35K.  That’s a $35,000 savings for a buyer who has their loan issued prior to September 27, 2020.  Buyers are essentially being offered free money if they move now.

  1. Don’t forget what motivates serious Buyers.  Individuals, Strategic Buyers, and Private Equity Groups are motivated by the exact same factors that motivated them before the COVID crisis hit.  

A private individual who was out of work before the crisis and had determined to to buy a business, is even more determined now.  Because of the SBA Debt Relief Efforts, they had additional resources available and they want to meet that September deadline.  

Strategic Buyers are typically focused on long-term investments in a given industry.  They expect short-term interruptions and will not be deterred by a few quarters that aren’t likely to be repeated.  

Private Equity Groups have just as much money pooled as they did a few months ago.  They are flush with funds and motivated to grow their investments.  They cannot do that if they stop making acquisitions.  

The Professionals at Business Brokers & Consultants are ready to guide you through the sales process even in today’s unsettling times. 

If you were already thinking about selling, don’t wait out the crisis or shutter your doors.  Let us help you make the most of this market and get your business ready to sell.  There are still buyers out there.  And, for reasons already discussed, it is highly likely that we will see a seller’s market in the near-term.   

If you would like to confidentially discuss your business goals, please call or email us and let’s get the conversation started.

Phone: 502-425-0995