The average age of a small business owner in the United States is 60 years old. Merchants everywhere are close to retiring, and for some, the pandemic may provide the perfect opportunity to sell their businesses earlier than planned.
Counterintuitively, the present pandemic isn’t the worst time to try to sell your small business. CNBC reports that essential businesses have risen in value: 11% of businesses have seen sales rise, while another 11% have not been financially impacted by COVID-19. Business owners with delivery, online education and e-commerce companies are well positioned to find someone to take over their operations. If you’re ready to sell your business and cash out, here are three ways the pandemic may impact that process.
[Read more: 5 Things to Know When Selling Your Small Business]
Take emotion out of the equation
The pandemic has left almost all of feeling stressed, overwhelmed and burned out. But most experts say there is light at the end of the tunnel.
“While no one can be entirely certain about the future, the amount of stimulus that the government has injected both on the business and consumer sides make a strong economic recovery more likely,” projects Berkshire Business Sales & Acquisitions.
For business owners nearing retirement or those who were thinking of selling before the pandemic hit, now might be the right moment. However, if you can dig deep and still feel a passion for serving your customers and working with your team, it may be worthwhile to hold on just a little bit longer.
“Selling a business can initially be an emotional consideration, but one has to drill down to the reality of why they want to sell and why it would make sense,” said Terry Monroe, founder and president of American Business Brokers & Advisors (ABBA). “Burnout is a common reason. If it’s affecting health or company performance, it’s time to get out. Another common factor is the inability to expand when necessary—the owner doesn’t want to incur the added debt relative to their age.”
Try to look at the full picture when deciding whether or not to sell. Other reasons why you may wish to put your small business up for sale could be a lack of a family succession plan, too much disruption in your industry or that you’d need to take on too much debt so late in life. But remember: This too shall pass, and you don’t want to have any regrets if you decide to retire now.
One has to drill down to the reality of why they want to sell and why it would make sense.
Terry Monroe, founder and president, American Business Brokers & Advisors
Do you have a team to help you?
Outside of a pandemic, you need the right people to help with valuation, negotiations and putting together the final agreement. During a pandemic, these people are even more important.
As one financial expert describes, a CPA can pick up things that might normally be missed as a business is preparing for a sale. In this instance, the CPA firm found that owners hadn’t properly capitalized their equipment, which impacted their P&L and balance sheets. Changing that small error grew their business valuation by $4 million.
“The selling process is very stressful,” said Monroe. “You can manage that by putting together a team of professionals who will guide you through it.”
Put together a group that includes an accountant, an attorney and a mergers and acquisitions specialist. These people will help you cleanup your accounting records, find the right investor and identify any risks or red flags in your operation that may complicate the final sale.
[Read more: 5 Tips for Finding the Right Investor — Even During the Pandemic]
Consider the timing
The timing of your sale is perhaps the trickiest part of this whole process. Monroe says that while it’s currently a good time to be a seller, not all sellers should try to cash out as soon as possible.
“For some businesses, the pandemic has impacted their business dramatically. This can be negative or positive,” said Monroe. “For business owners who were shut down during the pandemic, the odds of them selling their business in the next six to 12 months is minimal. If they are still in business, they will need to get back open and have at least one year, but preferably two years of sales to be able to sell their business for a fair price.”
Businesses that benefited from higher sales during this period will have an easier time selling. In addition to 2018 and 2019 sales reports, the bump in business during the pandemic is going to look very appealing to a prospective buyer. For these businesses, Monroe says it’s important to show how your business can survive any downturn. “To make your business stand out from the competition is to let prospective buyers know that your business is recession- and pandemic-proof.”
Bottom line: If you have a profitably business in a growing industry, it’s a great time to try to sell your business. But don’t feel forced to sell due to pressure from the pandemic. A period of stronger sales will make sure you don’t leave money on the table when it’s time to retire.
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