What does COVID-19 mean for your 2020 exit strategy?
Exiting a business can be a challenging experience at the best of times, and for those wishing to sell in 2020, the coronavirus pandemic may feel like an additional hurdle. In his latest article, Adviser Harry Morgan discusses why an exit this year could still be possible – and how to do so.
Many business owners will have had their exit plans thrown into disarray by COVID-19 – and none more so than those intending to sell this year. You may feel like you’re left facing a period of uncertainty when you should be reaping the rewards of years of hard work – but it isn’t all bad news!
While the pandemic has led to a pause in acquisitions, the wheels of business are beginning to turn, and private equity houses are once again open for business. Enquiries around new purchases are also beginning to rise, and buyers are ready to complete purchases that have been put on hold.
So, if you’re still hoping to sell up in 2020, there are some steps you can take to improve your chances.
Learning from 2008
Potential sellers are arguably in a better position than they were during the 2008 crash, with the government shielding businesses from the worst economic impacts of lockdown, offering loans, business rate support grants, furloughing and other schemes.
That said, there are still lessons to be learned from 2008 if you’re considering exiting your business in the current climate. First and foremost, it’s vital that you plan your exit process as soon as possible. That may seem obvious, but surprisingly a huge percentage of business owners looking to sell don’t have an exit strategy in place. In 2018, a Q1 Investor Watch Report found that 48% of business owners didn’t have a formal exit strategy.1
The importance of leadership
Times like these are a chance for your leadership qualities to shine – and being forward-thinking is a key strength of a good leader. Although it’s arguably hard to prepare for something as unprecedented as the pandemic, it goes without saying that the earlier you plan, the greater your resilience and flexibility to act when circumstances change.
There’s therefore no time like the present for you, as a business owner, to get your head down and use the time effectively to start working towards that exit, or by refreshing or refining your business’ strategy.
Showing your resilience
Remember that everyone is in the same boat, and it’s how you react to COVID-19 and the resulting upheaval that’s important to buyers. By surviving the pandemic, it shows a lot about resilience and the nature of your business. Plus, the companies that are successfully starting to rebuild their value to pre-crisis level are the ones that have shown the ability to innovate and adapt quickly.
Furthermore, owners who have had to take advantage of government loans or furlough employees and are worried about how this may come across, needn’t be – but make sure you have a clear narrative about how you expect to recover and move away from those initiatives.
A return to growth
There’s been a slow return to activity, but an acquisition will still take time. While not as jumpy as in 2008, buyers, banks and other funders are still nervous about how much financial risk they’re prepared to take and will want to carry out very strict due diligence. Make sure you identify – and remove/mitigate – any potential problems for buyers or funders, as even a smaller issue could destroy confidence in the deal in the current climate.
A buyer will want to see evidence of a stable and sustainable level of profitability and growth for a period of at least three months coming out of lockdown. For example, if it takes until September for the business to be back up and running at full pace, then by early December the acquirers will have three months’ active information. Ensure you’ve got a sound business plan, financial projections, cash and balance sheets and profit and loss records in place.
For more information
To conclude, then, by demonstrating strong leadership through the pandemic and achieving three months of stable, sustainable growth, you can put yourself in a strong position for an upcoming sale.
My best advice for those about to exit is not to panic and understand the situation your business is in. As always, an experienced financial adviser will be able to advise and guide you, and make sure your exit strategy is moving in the right direction.
Exit strategies may include the referral to a service that is separate and distinct to those offered by St. James’s Place.