Don’t wait to start your business valuation and begin exit planning.
We have received numerous inquiries about the business transaction climate. Is it still the right time to sell the business? Are there buyers out there? Are banks still doing deals? Do you know how to control for the impact of COVID-19 on my business?
The answer to all these questions is an emphatic YES! The market has remained extremely active. Buyers, investors and banks are looking for the ‘highest and best use’ of capital. And yes, there are valuation principles that allow us to establish a fair and competitive business sales price, with consideration for how COVID-19 has impacted the business.
The impact of COVID-19 has varied from sector to sector. Some businesses flourished; others faltered. Some businesses reinvented; others retreated. While, of course, the valuation of a business is based on the probability of future cash flow, we can assess how COVID-19 has affected that probability.
Let’s look at three simple scenarios:
1) a paper products distribution business fared exceptionally well during this crisis; supply chains are secure, profits are up, contracts are intact. The probability of future cash flow (again, the critical factor for a business valuation) would likely remain as high as it was pre-COVID-19, if not higher, owing to the inelasticity of the business. The best time to market your business is when things are going well.
2) a restaurant closed for two weeks and upon reopening maintained limited seating per guidelines but also established to-go service for both food and beverage. Profits were adversely affected for a period, but the business has since recovered to pre-COVID-19 performance, but no better. As the start and stop this ‘affected period’ can be controlled for, and the staying power of the business is evidenced through reinvented offerings and an unencumbered customer-base, the probability of future cash flow from the point of view of the valuator would likely remain high.
3) a bowling alley has had a consistently strong performance for the last three years. Owing to COVID-19, the business closed operations for six weeks. Upon reopening, capacity has been reduced, and performance has remained 35% below historical averages; and likely to stay low until social distancing guidelines have been revoked. Given what we know today, the valuation for this business would likely be conducted based on a pre-COVID-19 date (e.g., December 31, 2019), with the current conditions fully disclosed to a buyer and some allowance for discounting the probability of future cash flows. The amount of discounting would vary widely from business to business, factoring for numerous business intangibles.
Bottom line: there is no need to wait to start on the valuation of your business and begin the exit planning process. Buyers are looking for companies with confidence in the probability of future cash flow. GAI possesses the experience and current knowledge that can be employed to help you sell your business in the time and manner that is important to you. Do not retreat from your company or from your plans to sell your business. Now is the time to move forward. Please call us to set up a free consultation.