pChanging Landscape

The Changing Landscape to Selling Your Business in a COVID-19 Climate

by Charles Morningstar, Sound Business Brokers Wes Martin, Sound Business Brokers SPECIAL GUEST COLUMNISTS

Small businesses across all business verticals, have gone from enjoying tremendous success, to being shuttered literally overnight. Perhaps prior to the COVID-19 crisis you had thought about selling your business and now are asking if that is still viable. The answer is yes, but there are more factors to consider before you move ahead.

Bottom line, the process is the same, but the parameters have been modified. Here I have addressed six higher profile parameters to a transaction process which have changed since the onset of the COVID-19 crisis. Be aware, these are not the only parameters which have changed, but taking these into consideration should help a business owner considering selling to better understand how the topography of a business transaction has mutated.

Buyer’s Market There can be little doubt that in the coming months following the ‘re-opening’ of our economy that we will be in a period of a perceived buyers-market. It will be important to invest in whatever marketing apparatuses in order to return the financial health of the business back to ‘normal’ or at least upward trending as much as possible. If this happens, it will be easier to put less weight onto the COVID-19 era financials. On the other hand, some businesses may be excelling during this time and when the crisis subsides, their financials may decline to pre-COVID-19 levels.

Good news can be found in the fact that there are buyers still interested in acquiring business opportunities. Yes, some might be looking for distressed enterprises that they can

Wes Martin. Photo courtesy of Sound Business Brokers.

pick up at rock bottom multiples, but we have the belief that many will be similar to the same sort of buyers that we’ve always dealt with.

Post-COVID-19 Valuations While we might be taking a break from the pre-COVID-19 sky rocketing multipliers of the booming economy and scarce inventory conditions leading up to the crisis, there is no reason to think that companies that weather this downturn will experience bottomed out valuations. Multipliers will be more dynamic and intelligent. If your business thrived and continues to do well in the months after normalcy is established, you might see an increase in multiples, while if your business hit a brick wall financially during the crisis but jump started afterwards and is cruising back to profitability-then your multiples should sustain a reasonable value for your efforts. Will valuations most likely be lower than in the beginning of 2020? The answer is yes but with intelligent presentation and narrative, you should be able to present the best scenario for value in the market.

Reliance on SBA Lending It’s still too early to predict but if the last recession was any indication, access to SBA lending will tighten and most likely

become more difficult, especially for transactions that don’t quite fit into a tidy box for a lender. From a seller’s standpoint, showing resilience through the crisis and progress afterwards will be one of the main factors an SBA lender will be looking at. The other will be direct industry experience of the buyer. This will be far tighter than it’s been in recent years as lenders would call for ‘translatable’ experience which was a broad enough definition that could cover a large variety of vague experience levels. We’re fairly certain that the definitions are going to be extremely strict for the near future. What this means is that while SBA 7a and 504 deals will still exist, most sellers should be open to pathways outside of the SBA world.

Deal Structure One of the best tools a seller can have in the post-COVID-19 world to maintain value and assist in a successful transaction is to be open to creative deal structure. This most likely means a heavier reliance on temporary seller financing, benchmark terms, or some other creative means of accomplishing the transaction.

Due diligence is always an important piece of any transaction and that fact won’t be changing anytime soon. It’s noteworthy that buyers will most likely be diving deeper into the companies they are interested in. Sellers should just be prepared for this. Maintain clean books, respond quickly and with transparency, make your professionals and yourself available to the buyer and the heightened level of due diligence shouldn’t be anything to worry about.

If a buyer is interested in acquiring a business in your vertical, be the one the buyer wants to look at! Have a plan in place upon which your business operates and bases its strategic decisions upon. If your plan is well crafted and executed, your company will be perceived as being the less risky proposition.

Be the option the bank perceives as being the least risky alternative.

It’s easy to get lost in the gloom of the COVID-19-response and what it is doing to our economy but we believe that once we’re through this, the market will return and the pathways to sell and acquire business opportunities will again open. It’s up to us to recognize what’s different and adapt to new surroundings and opportunities.

Questions? Feel free to email the authors at Charles@soundbusinessbrokers.com or Wes@soundbusinessbrokers.com.

101

8 101

Olympia 7

Lacey

5 5

Tumwater 6

121

5

Tenino

2

1

510

Yelm

4

Rainier

507 3

Serving All of Thurston County

ECONOMIC DEVELOPMENT SUPPORT THROUGHOUT THURSTON COUNTY

1. Provided $70,000 for the renovation of the Historic Oddfellows Building.

2. Provided $75,000 to complete the Master plan for the SW Washington Innovation & Business Park.

3. Provided $10,000 for the installation of wider sidewalks, bulb-outs and landscaping along Binghampton Street to build downtown character and enhance the setting for local and visiting shoppers.

4. Provided $20,000 to assist with the design and construction of the community center.

5. Provided $15,000 to support investment in the Lacey MakerSpace project.

6. In partnership with the City of Tumwater and U.S. Fish and Wildlife, developed a Habitat Conversation Plan to provide long-term preservation and management of protected and endangered species.

7. In partnership with the Frank Family, Squaxin Island Tribe and Salmon Defense, developed and maintains the Billy Frank Jr. Park and Trail to provide a historical and educational self-guided walking tour.

PORTOLYMPIA.COM

360.528.8000

1970

2020

TIME AND MONEY. WE GIVE YOU BOTH.

We listen to you and your business needs—then

tailor a loan that fits. Our loans are custom-made, not mass-produced. Every business is different, so rest assured your Columbia Bank loan will be designed specifically to your needs, your business, and for you.

1-877-272-3678 ColumbiaBank.com

Community Youth Services is embarking on 50 years of excellent service to youth-at-risk and youth experiencing homelessness in the South Sound region. With over 20 interrelated programs and service to 6,500 youth and families each year, we are in need of some building restoration and improvements to ensure continued excellence for the next 50 years! We hope you will join us in this endeavor to change young people’s lives. To learn more, please visit:

Three Girls Media

We offer world class marketing and custom quality content for small & mid-sized businesses. Services include social media management & ads, blogging, email marketing and much more. Contact us

today for a complimentary consultation!