These are uncertain and unprecedented times. Anyone who says they know exactly how business sales will be affected are just guessing. I've been spending this downtime attending meetings hosted by leading business sales associations and reading business articles. Here are some facts, and my opinions as a result of my research:
Fact: As of this writing, the unemployment rate is higher than it's ever been since the 1930's.
Fact: Businesses are starting to open back up.
Fact: Inquiries on business are finally starting to improve (for my businesses)
Opinion: The unemployment rate will drop as businesses open back up, but there will be a lot of people displaced and looking for alternative income options. This means more people looking for businesses to purchase.
Opinion: Buyers are expecting a discount on businesses. Seller's who are willing to offer a discount or offer seller financing will fair better than those that stick with their pre-COVID19 marketing plans.
Opinion: Businesses that are marketed in a way to make the buying process easier will have a more opportunities to turn a "looker" into a "buyer". Let me expand:
- Respect confidentiality, but share as much information with potential buyers as you can before requiring an NDA or offer. Some Brokers require buyers to jump through hoop after hoop before sharing basic financials. Unfortunately, some Brokers don't want to be bothered with "lookers" because they have over twenty listings, all overpriced. See my article on Disappearing Brokers where I explain why this practice exists and why it is not good for sellers. Buyers will get disinterested and move on.
- Get a bank to pre-approve your business for a loan. Loan approval is a two part process. 1) the business financials have to make sense for a bank to approve financing, and 2) the buyer has to qualify for the loan through collateral and experience. The restaurant industry is a good example of where experience is so important to build lender confidence. Listing a business as loan pre-approved is especially important in times like these where buyers new to entrepreneurship will need extra confidence that a bank has given a business their blessing. Pre-approval also gives the seller confidence that their business in not overpriced. If a Broker tells you that you can get a price for your business that seems unrealistic, it probably is. Read my article "What's your business worth"
- Respond quickly to buyer inquiries. Time kills deals. The more delays in the selling process of a business, the more likely the sale will not happen. Buyer's remorse, seller's remorse, newer listings, etc, etc. 90% of businesses listed do not sell, and the 10% that do take an average of 9 months. Whether you employ a Broker or try to sell your business on your own, make sure to respond quickly to buyer inquiries and requests.
- Be creative by making your business stand out. The better business for a new Entrepreneur is one that is Loan Pre-Approved and one that offers Seller Financing. Seller financing keeps the seller somewhat invested in the continuing success of the business. It also gives the buyer confidence that the financials of the business are sound and accurate. Seller financing has risks, so be careful when determining how much to offer, and how to offer it. A good Business Broker can explain this further.
- Show that your business can adapt to changing times. Most new Entrepreneurs want to buy a business that is successful, but has some room for improvement. A business that has already maximized it's potential is a risk because removing the current owner will most likely result in declining revenue. Conversely, a business that is not improving at all, or is no longer profitable as a result of this pandemic is a big question mark. New Entrepreneurs are risk averse, and don't want to invest in question marks. Show that you've started taking steps to adjust to the new market and those steps are proving positive results. No matter how small, documenting these changes will improve buyer confidence.
- Don't jump into Escrow with a buyer that isn't truly ready to buy the business. Some Brokers will try to get into escrow as quickly as possible with the first buyer that shows interest. In reality, jumping into Escrow before the buyer is truly qualified can discourage other potential buyers and risk getting the best terms and price. The earnest deposit is typically fully refundable if the many conditions are not met, so don't count on getting that without a huge legal battle. My advice is to get the major conditions out of the way before jumping into Escrow. It's important to make sure a buyer is qualified and truly interested, so don't be afraid to verify their qualification - think like a bank. Check their liquid assets, credit, and collateral. Before you open all of your books to them, get an earnest deposit and hold it while in the due diligence phase. Don't go into escrow until both parties are satisfied.
For more ways to make your business ready to sell in these new time, please contact us.