Insight Two: Selling A Business Isn’t a Waiting Game
When the pandemic struck, it accelerated the exit plans of many small businesspeople. It didn’t make sense for a lot of these entrepreneurs to try and weather the storm knowing their business might look different on the other side.
As a result, the number of listings that hit the market in 2020 increased. Though interest in purchasing these small businesses remained steady over the course of the pandemic, demand did not keep pace with supply.
Most small businesses spend anywhere from three to 12 months on the market when they’re put up for sale. Prior to the pandemic about 15% listed on BuyAndSellABusiness.com sold in about three months, with 50% sold at around six months, and 35% sold at 12 months or more. In 2020, those numbers were adjusted backwards. Just 5% of businesses sold in three months, 55% sold in six months, and 40% sold in about 12 months or more.
It’s likely that pricing also played a role in these lengthened timelines. The median asking price for listings on BuyAndSellABusiness.com in the first quarter of 2020 was $384,000 but as of January 2021 it had jumped to $524,116—36% higher.
“Sellers were trying to salvage and maximize the value of their pandemic-impacted businesses by pricing higher, while many buyers were looking for opportunities to buy businesses at a discount as a result of the pandemic,” explained Nunzio Presta, the CEO of BuyAndSellABusiness.com.
Selling a business requires an exit strategy which takes time to execute—often years. Not only that, but finding the right seller and maximizing the value of a business is an active process on the seller’s part. Far from detracting from the seller’s role, the pandemic—which dramatically changed the market conditions—revealed how important it was.
Here are a few key points to keep in mind when crafting and carrying out an exit strategy.
Think about your timing
There are a variety of reasons why someone may want or need to get out of a business, some of which offer greater flexibility than others. If you’re dealing with a health issue that’s affecting your ability to work, you’re not going to have the same flexibility as if you were retiring under different circumstances.
Long-term planning is critical. Ideally, you want to set yourself up with a two-to-four-year window and begin your succession planning around that time frame, keeping updated records, business history, and a sales portfolio. This way when the right buyer does walk through the door, it’s clear that you’ve set them up for success, which enhances the value of the business you’ve worked so hard to build. Businesspeople that tried to get out quickly during the pandemic often failed to give themselves this opportunity.
It’s also possible that market downturns that put strain on your competitors may create new opportunities for your business. You should aim to sell when the time is right for you, not just before things get worse.
Promote your business
Even if you’re working with a broker, you can’t expect them to do all the work marketing your business. “You are the best promoter for your business,” wrote Debbie Allen in a 2020 piece for The Balance Small Business. “Who knows your business better than you? No one is more motivated, passionate and knowledgeable about your business than you.”
When Allen was selling her retail store, she was frustrated by the lack of leads. So, she took matters into her own hands, offering bonuses to sales associates who sent her potential buyers. “Within a couple of weeks, I had created such hype that I had three different buyers working on buying the business at the same time,” she wrote.
In a crowded market, like the one we saw during the pandemic, these sorts of tactics can create a buzz around your business.
Make sure you’re ready
There’s a difference between being emotionally prepared to part with your business and being operationally prepared to part with your business.
“Just as a house with faulty plumbing or ugly carpeting may not garner the best price, a business with poorly kept financial records, outdated equipment or risky employment practices likely will not be values as highly as the business owner desires,” writes Patricia E. Farrell, a Pittsburgh-based attorney who represents businesses in mergers, acquisitions, divestitures, and other major transactions.
The pandemic offered an opportunity for most businesses to do that kind of housekeeping, she pointed out. But even now that business-as-usual is returning, it’s critical for businesses preparing to sell to carve out time and enlist the help of a broker, as well as legal and financial experts, to ensure the business can be handed off smoothly.
Opinions expressed here by Contributors are their own.
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