Way back in December 2019, the economy was booming, and the thought of a global pandemic was not on anyone’s radar. Then things quickly changed.
We are in uncertain times. On one hand, the NASDAQ just surpassed it’s all time high – a nod in the direction of tech companies in a strong position to weather – or even thrive – in the midst of a COVID-19 storm. On the other hand, small businesses continue to struggle through very uncertain times. It’s increasingly unclear when business will return to normal.
First consider your timing. Is now the right time to sell? Several factors go into this decision, as recently discussed in my previous blog post. At a fundamental level, consider the extent to which COVID-19 has impacted your top line revenues, and whether revenues can resume as economic restrictions are slowly lifted. Businesses that have managed to continue or resume revenue generation during the crisis are likely to sell at healthier valuation multiples.
Check your books. Buyers evaluating your business typically require three years of financial information. You’ll want the ability to generate P&L statements and balance sheets. Particularly with the current crisis in mind, it’s useful to be able to generate reports for precise time periods. For example, a buyer may want to see a P&L statement for the specific timeframe that coincides with the COVID-19 crisis; and further, to compare this specific P&L to the same time period in 2019. If your accounting is already in QuickBooks or a related software system, this level of request is easy to generate quickly and easily. Alternatively, if you’re unable to generate this detailed level of reporting, now is a great time to transition your record keeping to a modern accounting software application.
Track nonoperational expenses well. Many privately held businesses claim a variety of nonoperational expenses. It’s important to maintain supporting documentation for these expenses. As an example, your business may be paying for travel and entertainment expenses which may include a family vacation. It’s important to keep receipts for such expenses, as a buyer may wish to review them down the road in due diligence. Now is a great time to consider nonoperational expenses for the past 3 years, and make sure you have the receipts handy.
Check your appearance. That is, check the appearance of your business from a buyer’s vantage point. Ensuring your buyer’s positive first impression in critically important. A clean and organized environment suggests an orderly management team and well-run operations. Selling a business is similar to selling a home in this regard. When you sell a home, it’s wise to first check the appearance of the home and address any immediate eyesores, such as cracked paint or landscaping needs. Similarly, for your business, now is a great time to address any issues that could otherwise give the wrong first impression to your buyer.
Organize your important papers. Make a list of all important documents that a buyer is likely to request. This can include items such as: incorporation papers, permits, patents & trademarks, licensing agreements, leases, customer / vendor contracts, and more. Now is a great time to make sure you have these documents readily available, current, and in order.
How’s your A Team? Do you already have a business attorney? How about a CPA and bookkeeper? You’ll need to have these resources at your disposal when the time comes to sell. Now is the time to make sure you have these resources in place. If you need a recommendation, Sunbelt can help.
Suffice it to say that you’ll also need a strong, experienced business broker working on your behalf. Now is the time to initiate this relationship. At Sunbelt, we offer complimentary (and confidential) consultations for small business owners. Simply us a call at (408) 436-1900 to get started.