Selling Your Business in a Down Market

Is now an ideal time to sell your business? Not exactly. Buyers are nervous. Financing is hard to find (every banker I know is swamped). And valuations are likely to experience downward pressure, after recent highs. As a result, some sellers are holding off until the market stabilizes, and the economy improves.

However, in my experience, owners rarely sell their business for purely financial reasons. Usually the decision to sell is driven by other factors, including retirement, health, family, partnership issues, or simply burnout. Although some of these events may be foreseen or anticipated, they often occur unexpectedly.

Despite all of the doom and gloom, there are plenty of small businesses on the market – and they’re finding buyers. Our firm is working on multiple closings as I write this. In order to successfully sell your business in today’s market, you need to recognize the current environment, and make adjustments to address today’s economic realities.

1. Know your industry. While some industries are suffering through closures (restaurants, hotels, etc.), other industries will weather the storm quite comfortably. If you are in an industry that is positioned to thrive in the current economic climate, you may find your business is in high demand! A few that come to mind; Medical equipment sales, accounting and legal practices, online businesses, pest control, and shipping and logistics.

2. Develop a roadmap to success. If your business is feeling pressure from current economic factors, don’t try to hide it. Be transparent about your current challenges, but also develop and communicate a plan showing the steps you can take now to ensure the business will survive and thrive in the future.

3. Get organized, and proactively address any issues. This is true in any economy, but is particularly important in the current economic downturn. Buyers are nervous, and you want to minimize any due diligence challenges that could potentially derail your deal. Ensure everything from your balance sheet to your equipment and facilities are in order. Get your financials up to date, including year-to-date results. Cut any unnecessary expenses. Delay investments that are not necessary and won’t result in an immediate return. Renegotiate everything from your lease to supplier and customer contracts for more favourable terms.

4. Be creative with financing. Almost all deals require financing, and unfortunately, the banks are currently overwhelmed with existing clients looking for financial relief. Obtaining traditional financing may be challenging, and at the very least, will take substantially longer than usual. If you’re serious about selling, the easiest way to bridge this gap is to finance the deal yourself, by providing a note to the buyer for a portion of the purchase price. The buyer will then pay you back over a period of time – usually between 2 and 5 years. Earn-outs may also help, and will demonstrate to a buyer that you believe in the company’s future.

Thinking of selling your business, but not sure if the timing is right? Give us a call, and we’d be happy to discuss your options.