Selling a business during the Covid-19 crisis: planning and preparing
COVID-19 has impacted every aspect of business, and that’s especially true when it comes to selling one
If you’re considering selling your company, an expert in corporate banking provides guidance on what to expect, pitfalls to avoid and steps to ensure you get the outcome you deserve.
Selling Your Business Requires Planning
When you started your business, selling it was likely the last thing on your mind. But now for any number of reasons, you may be considering it. Steve Griffith, Corporate Banking Division Manager at Vectra Bank Colorado, shares his insights on what business owners may want to consider when preparing to sell their business.
When should you start preparing to sell?
The earlier the better! It’s common to start preparing two to five years in advance of a sale, depending on the size and complexity of your business. Many business owners don’t realize that selling a business can be a complicated and time-consuming process. Plan ahead – engage an M&A advisor, investment banker or business broker to help you navigate through the challenges of a sale transaction. Additionally, sellers often miss good opportunities to sell because they weren’t prepared ahead of time.
You should also consider if you still want to be involved with the business after the sale. Are you selling all of your business, or only part of it? Will other family members still be involved post-sale? Keep in mind that if you plan to remain involved, you will now be working for someone else.
Determining the value of your business
One of the first steps in preparing your business for sale is determining its value. You will want to determine if the transaction will be an asset sale or stock sale. You may prefer one type of sale over the other for various reasons, and valuation methods may vary depending on the industry, so you’ll need to decide which type of sale is in your best interest.
Another important step is to evaluate the quality of your financial reporting. Maintaining solid books is essential to validating the performance of your company. Make sure your balance sheet is clean. You don’t want valuation negotiations to get sidetracked on issues of stale or obsolete inventory or uncollectable receivables. Prospective buyers may also want to perform an independent Quality of Earnings analysis to validate your revenues and expenses.
How to increase the value of your business
Find ways to grow your revenues and profitability! Buyers are attracted to companies that demonstrate consistent growth characteristics. Are your revenues stable and recurring? Establish processes and streamline your operations. Having a strong management team in place can also add value to your business, along with strong brand recognition and long-term client relationships.
Selling the business yourself vs. using an investment banker
Selling your company can be an emotional event. While you may consider yourself a good negotiator, the process can be arduous and these emotions can get in the way of the best possible outcome. Having a good investment banker in your corner who can remain objective will help with any difficult negotiations.
The most important thing an investment banker can do is the pre-sale planning. Not only will they help you determine the value of your company and prepare it for sale, they will do a lot of the necessary extra work which will allow you to continue to do the important job of running your business.
You can also use an investment banker’s experience to help you vet potential buyers. In many cases, sellers continue to be actively involved in the business either in day-to-day operations or on the board. You need to be comfortable working on an ongoing basis with the buyer of your company.
Things to consider during COVID
While COVID-19 has changed the way that many businesses operate today, it doesn’t need to be a deterrent in the decision to sell your business. With some preparation and plans in place, it can still be a good time to sell your business. Here are a few things to consider:
- How strong is your existing supply chain? Do you have backup suppliers and vendors in case of an unanticipated interruption?
- Are you on top of state and local COVID regulations and restrictions? Can you deliver your products or services safely?
- Do you have a current business continuity and contingency plan in place?
- Do you have technology in place to deal with changes in operations, such as employees working remotely?
- How robust is your accounts receivable management and collection process?
If you have answers to these questions, you should feel confident that COVID will not hinder the sale of your business.
Selling your business is a big decision, but with planning and preparation you can maximize the value of your business and feel confident that you are making the right decision.
Executive Vice President, Corporate Banking
Steve has more than 40 years of banking experience and currently manages the Corporate Banking Division of Vectra Bank Colorado, including the Municipal Banking Group. During his tenure, he has held various positions at Vectra including Relationship Manager (both in Commercial Banking as well as Corporate Banking), Regional Director, Commercial Banking Team Leader, and Corporate Banking Team Leader. Steve has served on the board of the Association for Corporate Growth (ACG) as well as the Chairman of the Colorado Sports Hall of Fame Board of Directors.
(This sponsored content was provided by Vectra Bank Colorado)