We’re living in strange times with the pandemic, a record number of hurricanes and a change of residents in the White House. So if you’re considering exiting your business, it’s natural to wonder if you should sell your business now or wait a while.
Among the many issues you must weigh, probably the most important consideration in making the decision to sell your business now or wait for a while longer is the question of valuation. In short, business owners are wondering what effect the pandemic has had on the valuation of small to medium size businesses?
The answer is, “It depends.”
It depends almost entirely on the type of business, with bars and restaurants suffering the most. I’m advising my restaurant and bar clients who are considering selling their businesses to wait. Valuations are down critically in the category because earnings have been so dramatically reduced. If these owners can survive until the country is vaccinated — big “if” — then they will realize more from their years of hard work.
Other categories of businesses are more fortunate. In most other categories, valuation specialists, myself included, are not penalizing the business for a dip in earnings if experienced during the pandemic, realizing that it’s not a trend. And any dip is likely to be dramatically less than in the restaurant/bar sector and easier for business buyers to overlook.
In addition, there are at least three other issues for a business owner to consider when trying to decide whether to sell the business now or wait. These are (1) market availability, (2) the accessibility of buyer financing and (3) the time frame from the decision to sell until you get to the closing table.
By market availability, I mean what businesses are on the market and available for a business buyer to consider. A lot of businesses on the market favor the buyer; fewer options favor the seller. Right now, there is a scarcity nationally of businesses posted to the business-for-sale websites compared to normal times. I’m in touch weekly with business brokers around the country and almost to a person, they tell me they have fewer offerings in their portfolios now than they have had in a long time. Some say the fewest ever.
Regarding buyer financing, banks with the federal government’s encouragement are now aggressively making loans, especially under the SBA 7(a) business acquisition loan program. I have bankers calling me frequently soliciting referrals of business buyers seeking financing.
The last consideration I’ll discuss is the time it takes to sell a business. It’s not an overnight process. Selling a business versus selling a home is more complicated and it takes longer. Four to eight months is a reasonable time frame.
Because of this, a business seller should start planning ahead. There is more seasonality to business sales than most folks would realize, with January through April being the busiest months. It’s not dramatically busier, but in my 34 years of business brokerage, I’ve noticed it.
No doubt, you as the business owner, have more issues to consider than just those discussed above. After all, you have successfully operated your business over many years and you are the ultimate decision maker.
You’ve seen, haven’t you, photos of President Truman seated in the Oval Office behind the desk plaque, “The Buck Stops Here.” It also applies to you, the business owner.
If you think I might be of assistance with your business planning, please don’t hesitate to call or email. All communications are strictly confidential. If you would like to have it, I can email you a digital copy of my 40-page booklet, “How to Sell Your Business While Avoiding Costly Mistakes.”
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William Bruce is an Accredited Business Intermediary (ABI) and Senior Valuation Analyst (SVA) assisting buyers and sellers of privately held businesses in the transfer of ownership. He currently serves as president of the American Business Brokers Association. His practice includes consulting services nationally on issues of business valuation and transfer. He may be reached at (251) 990-5934 or by email at Will@WilliamBruce.org.