Now is Not the Time to Sell Your Business

By Jay Carter

For business owners who planned to sell their business anytime in the next 5-10 years, it’s important that they understand how the current recession is impacting the value and the salability of their business. And, even more importantly, they should be taking steps now to preserve the value and position the business for a successful sale in the future.

We just ended a multi-year run of strong merger and acquisition activity. It was a true seller’s market. There were plenty of private equity and strategic buyers competing to acquire private businesses, driving valuations up to some of the highest levels in history.

When COVID-19 hit, the strong seller’s market became NO market, and now a strong buyer’s market is emerging. All of the buyers that were around prior to COVID-19 are still around and they still have plenty of cash. The problem is that buyers are opportunists who are now buying cash-strapped businesses at discounted valuations.

My 25 years studying buyer behavior has taught me that buyer activity and business valuations bounce back faster than the economy, so unless an owner has no other options, now is not the time to sell their business.

There are things that business owners should be doing that will enhance the value of their business and position it for sale in the future. And, the sooner the changes are made, the more valuable they will be to the owner.

Now is not the time to sell your business.

Enhancing Future Value

Business owners should not worry about what their business is worth today. Unless they are forced to sell it, the current valuation is not what’s important. The business’s value at the time of its sale is what really matters.

A great way to start enhancing value is to prepare a list of the factors either drive or take away value for businesses in their industry. We have identified hundreds of distinct Value Factors that can impact both the valuation of a business and its attractiveness in the marketplace. Once the relevant Value Factors are identified, the business should be evaluated for each. For example, we assign each Value Factor to one of three categories: 1) Value Driver, 2) Value Detractor/Value Opportunity, 3) Value Neutral.

Next, we focus on the Value Detractors/Value Opportunities identified. These serve as the basis for the owner’s task list for building value prior to a future sale.

To get started, we have listed below a dozen Value Factors that are high impact and apply to virtually every industry. (Knowing unique Value Factors for the company’s industry is equally important.)

The company has a diversified customer base with no customer > 15% of total revenue.
The company has a diversified supplier/vendor base with no supplier/vendor > 15% of total purchases.
The company has retention programs to ensure key employees don't leave the company before a sale.
The company’s equipment and systems are up-to-date and suitable for anticipated growth.
The owner has a good understanding of how much the business is worth today.
The company’s gross and net profit margins are above industry averages.
The company’s working capital is being effectively managed with a future sale in mind.
The company’s inventory is fresh and relevant to its current business.
The company produces timely, accurate monthly financial statements, prepared on a consistent basis.
The company’s products/services are differentiated from competitors'.
The company has a written business or strategic plan.
The company has no history of employment discrimination.

5 Key Takeaways

Now is not the time to sell your business.
Don’t worry too much about what the business is worth today.
Take steps now to preserve value and prepare the business for a future sale.
It’s a great time to review Value Factors and identify Value Opportunities.
More lead time is better for making value-enhancing changes. Buyers pay for results, not plans.

About the author: Jay Carter helps business owners monetize their life's work through the sale of their business. Jay developed the MarketView model, a proprietary system used to evaluate privately owned businesses and prepare them for successful exit transactions. A frequent speaker and writer on the topics of seller preparedness and valuation enhancement, Jay lives in San Diego, California, and works with business owners nationwide.

For more information, please contact:

Jay Carter
Founder and CEO
Market-View
704-904-7543
jcarter@market-view.com
www.market-view.com