You’ve spent years building your business. After decades of hard work and sacrifice, you are finally ready to enjoy the fruits of your labor and take some “chips off the table” by selling your business. You have a buyer and purchase agreement in hand and negotiations are going well. Then a global pandemic hits. Now what!? First, don’t panic. Some business sales are still going through, so yours might, too. And even if yours doesn’t, even when everything seems thrown into turmoil, opportunities are still out there. Below are four things business owners should explore now if they are in the midst of a sale, or marketing a business for sale:
Look at your agreement with the buyer.
If you are under contract to sell your business, take a look at the agreement. What are your rights and remedies? What ability do either of you have to exit the deal, or compel the other to proceed? Does your agreement have a “force majeure” clause, which essentially frees both parties from liability or obligation when an extraordinary event or circumstance (such as a global pandemic) is beyond their control? Have a firm understanding of what your purchase agreement says and what rights it grants you before making any other decisions.
Decide what you - and the buyer - now want to happen.
If you have an agreement, and either or both of you have the ability to terminate the agreement, consider what each of you wants to happen, not just what you have the right to make happen. Don’t lose sight of the fact that a deal involves a shared vision: the buyer and seller each agree that (a) the buyer wants to buy the business for $X, and (b) the seller wants to sell for $X. Both parties must also agree that now is the time for that transaction to occur and agree as to the structure of the transaction. Throw in a global pandemic and it is time to come back together to determine if there is still this commonality of vision.
The economic landscape has fundamentally changed in just a few months. Is what you desired early in the year still want you want today? Perhaps both you and the buyer very much want the deal to go forward. If so, fantastic. However, with valuations generally down as a result of lower earnings and lower multiples, buyers may ask for a price adjustment, a reduction of cash up front, or both. In addition, the buyer’s lenders may want to lend less. Nonetheless, you may still have a common vision – it just may be different than the one you shared a few months ago.
If you are no longer selling your business now, recognize there are still opportunities.
If a deal falls through, it’s not the end of the world. It can actually be a golden opportunity to position your business to be even more attractive to potential buyers when the economy recovers. What are the tough decisions you have been avoiding but know will make your business better in the long run? Make them now. It could be personnel changes. It could be shuttering an unproductive line or division. It could be restructuring compensation. It could be venturing into a new line of business that represents the future. It could mean cleaning up your balance sheet. It could mean taking advantage of a drop in your business’s value by putting some of that business interest into a trust to potentially lessen future estate taxes. Dive into these key pre-transaction planning tasks now in order to make your business stronger – and more valuable – in the long run.
Instead of selling, maybe now is the time to buy.
As counterintuitive as it may seem, the time may no longer be right to sell, but rather to buy. An economic downturn can be the ideal time for a strategic buyer, someone who is deeply knowledgeable about and experienced in a specific industry, as opposed to a financial buyer, such as a private equity firm. Perhaps that strategic buyer is you. When an industry is stressed, who better to understand the opportunities and solutions going forward than someone who has been immersed in it for years? For those who have a vision for the path forward, the current environment can be a very powerful - and potentially lucrative - opportunity to put that vision to work.
Times have changed. To be sure, they’ll change again. Think in terms of opportunity. That’s what you did to build your business. That’s what you can do now to save/grow/change your business.
Cresset specializes in Intelligent Wealth Management™ for CEO Founders, PE Partners, entrepreneurs, and high-net-worth families. Our Family Office goal is to simplify and elevate your life so you have more time to spend on what matters to you most.
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