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COVID-19 and Selling Your Business

We never quite got to anyone making a solid case for EBITDABR …. BR for Brexit that is, but I think there is a genuine consensus now that we should be considering EBITDAC in the current climate; with the C added on to the traditional EBITDA to adjust for the effect of COVID-19.

COVID-19 has had a major negative effect on everyone’s lives and on every business; but, it should be seen as a passing phase. Yes, I agree that the world will change following its impact and we will enter a new “norm”, but history has shown that the bounce-back will arrive and we will move into working around and within this new norm.

Buyers will accept that the blip in performance has happened, providing the recovery of the business is back to pre-pandemic levels. Even if not, and there has been a change in the business model and performance, if the business remains viable and is attractive to buyers, it will have value, perhaps not as high as pre-pandemic, but value, nevertheless.

As sellers you should expect the onus of proof to show that the business is back to normal will be very much with you and expect Buyers to be a little more cautious around deals than they may otherwise have been. Sellers need to be prepared for deal structures to be more heavily geared towards more deferred consideration, whether that be on a performance-related basis or otherwise.

As we sit today in early June, having entered the start of the relaxation of the lockdown, we have seen real strength of interest resurfacing from buyers, particularly private equity players where significant money is being held waiting to find a home that will provide a decent return; 0.01% for deposits at banks is certainly not that!

As business owners, if you’ve arrived at the point of deciding you want to sell the business, whether that be due to retirement, change of direction or any other reason that you have something better to do with your life; don’t be put off by this short-term COVID effect.

What should SME business owners who are thinking of a sale be doing, firstly cash has, is and probably always will be king when it comes to the survival and growth of sme businesses; so now is the time to be even more critically focussed on cash management in the business, whether that be collecting your debts or validating every £ spent.

Secondly, don’t try to over-think things, none of us has a crystal ball (or not one that works anyway!), do the simple things as well as you can and try to be consistently not stupid, instead of trying to be very intelligent, as one of Warren Buffets advisers said.

Thirdly, do the archetypal housekeeping review of the business, COVID or not, any buyer wants to see a business that looks and feels like it’s being run properly (please see our other articles about getting your business ready for sale).

Lastly, do not put it off, you have made a decision for proper reasons and stick with your plan.

Over the long course of history, optimism has triumphed. The world has improved and with it, economies generally have risen and strengthened. There will be setbacks, they might be significant, just as there have been in the past, but a negative view is an implicit bet against our ability to adapt, survive and flourish.

Despite World War I, Spanish Flu, the Great Depression, World War II, the Cold War, and 9/11, worldwide business and economies have thrived. Economic output has increased many-fold. Economies get better over time, but when you pull back the curtain at pretty much any single point in time, all you see is chaos, loss and destruction. I am sure that will be the same for COVID-19 as well.

If all the stories in the press are gloomy, our instincts go into overdrive because, if someone shouts, “You’re under attack!” a normal reaction is to run first and question second. The old fight or flight reactions are human nature, but as humankind has developed, we have learned that sitting back, thinking through the issues and producing a thought-out plan of action is generally the best solution.

As business brokers, we at Anderson Shaw Corporate Finance Ltd, are always happy to advise business owners about any aspect of selling a business and the processes involved. If you are thinking of selling your business, now or in the future, please contact us for a confidential, no commitment conversation. We will be pleased to provide a business valuation and discuss your plans in relation to your business.

Anderson Shaw has offices on the outskirts of Stratford-Upon-Avon and provides business broker and corporate finance services for clients throughout the Midlands and the UK.

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