Should I stay or should I go now?
If this is the year you are going to decide whether you will stay or sell your business, there are a few things to consider besides the infamous Clash song. We spoke with Michael Kabiri of Transworld Business Advisors, who shared his expertise.
“When people ask me if 2020 was a busier or a slower time for us in terms of helping people buy and sell businesses, I say ‘yes.’ This is a fantastic time for both buying and selling a business. This is a unique time, unlike the recession of 2009 when foreclosures and bankruptcies were the exit strategy of choice. If someone is thinking about selling their business, there are many factors to consider,” Kabiri said.
Financial considerations
- Tax implications. Any changes to the capital gains tax may have a huge impact on the net proceed from the sale of your business.
- Loan repayment. Many businesses recently secured an SBA loan to weather the pandemic and/or to have ‘just in case.’ If you choose to sell your business, with the possible exception of PPE, you must repay the loan upon the sale of your business.
- Low interest rates. Most industry experts anticipate rates staying low through 2021, which works in your favor if you stay in your business or choose to sell. If you are selling, prospective buyers can borrow efficiently. If you need to refinance to invest in your business, you can put the low rates to work for you.
- New prospective buyers. You can blame or thank Covid-19, but it did cause many people to leave the corporate world, lose their job or ‘retire.’ According to many Realtors in the Lowcountry, these business people are relocating and might have money to invest. You can only golf so much, right?
Personal considerations
- Energy and enthusiasm. The toll the pandemic took on people varies and while you may feel burned out and ready to check out, there are people ready to re-start and your business might be right for them.
- Success reality check. If your business had a great year in 2020, and believe it or not, many did, you need to honestly assess if it was due to COVID and if the success is sustainable. For example, if you own a primarily take-out restaurant and saw a huge boom beginning in May, that could be considered a short-term lift brought on by the pandemic.
- Face a falter. On the other hand, if your business faltered in 2020, was it due to COVID or are there other economic factors in play? A prospective buyer can factor the COVID impact into their value assessment. However, if there are trends in your industry that COVID accelerated, that may suppress the valuation. For example, if you own a retail store that was seeing business ever-so-slowly shift to online, that shift likely accelerated during the pandemic. Be honest with yourself as to the real reason for your decline in sales.
In your decision-making process, it is critical you seek professional advice from your attorney, your financial advisor and a business advisor intermediary. What can a business advisor intermediary do for you?
1. They hold up that mirror so you can make an honest assessment of your situation.
2. They provide options. Sometimes, not selling right away is a better option.
3. They can help with positioning the business for sale and help with the selling structure.
4. They find buyers or other solutions to help you achieve your goal.
Shush!
Keeping confidentiality is the single most important trait of a business broker and advisor. If word gets out you are even considering selling your business, you risk:
Losing employees – They will feel unsettled and might look for more stable employment
Losing customers – They will question whether you will be there to provide service should they need it
Awaken your competition – They could pounce and approach your customers
and employees
Michael Kabiri of Transworld Business Advisors
