Looking for the exit: Is it the right time to sell your business?
- AuthorAdam Gilbert
Let's face it, for the vast majority of businesses, 2020 has not been a vintage year and understandably, we're talking to many business owners who have had enough or are questioning whether they have the continued drive or energy to take their business forward or in some cases to rebuild back to pre-COVID19 levels. Others have decided to bring their retirement forward.
How easy is it to sell your business at this time?
We always advise clients wanting to sell that to get the right buyer and the right price, they should put together a 3-5 year plan. That doesn’t mean to say that a sale will take 3-5 years but it allows time for your business to be presented in the best light and to try to avoid the infamous "price chip".
Acquisitions at the moment are best described as "lumpy". In many sectors, deals are still going ahead and to a large extent it is dictated by how hard an impact COVID-19 has had on your sector. We recently sold a candle and soap manufacturer and as you would expect, it was unaffected (in fact sales rose) during the pandemic.
Online retail businesses also continue to do relatively well with prices for those businesses staying strong. We have sold two during the pandemic, both fetching the price the sellers wanted.
Being realistic about the price you are going to get is a factor on how easy it is to sell. A valuation pre-COVID-19 is not going to be the same as now. Its unlikely that you will get the same offer unless it can be shown that your business has not been adversely affected and in some cases, businesses have been doing better.
Also consider alternative "sales". A little used method of exiting a business is a company purchasing its own shares back. If your company has sufficient reserves, you could be brought out by your own company. There still needs to be a remaining shareholder, but is now the time for a business partner to buy you out using the cash in the company?
"I've had enough, I just want to sell!"
We've heard this a lot lately and understandably, many have pandemic fatigue. The corporate finance and business agents we work with are in almost all cases able to find buyers but even on a "quick" process need at least a month to obtain financial information to present the business in the best light.
Who is my buyer and does it have to be an external third party?
Consider who is the best buyer for your business, often your buyer is right in front of you without realising it:
- Think about whether a management team could take over and buy you out. Now may be the time for them to take over the reins.
- Is there a competitor you know, would they be interested?
- Does your business compliment another business you know and again would they be interested?
- Does the business have retained profits and could a company own buy back of shares be put in place to buy you or other shareholders out? Whilst there must always be one shareholder left, it may be a chance to buy out a partner? Or for them to buy you out without them using personal money?
Other things to consider
- Funding is a problem at the moment – we are seeing many deals put on hold whilst lenders establish the impact of COVID-19 on the business and whether they are happy to take the risk. That said, there are lenders still actively involved in lending on the right deals and surprisingly, there are a number of cash rich buyers around.
- There is a chance that capital gains tax rules could change – the Chancellor will need to recoup some of the huge amounts that have been pumped into the economy. A report by the OTS (Office for Tax Simplification) commissioned by the Treasury recommended last week that the personal allowance could be reduced, CGT brought into line with income tax and the current reliefs up to £1m scrapped. In short, selling after the next Budget could be hugely different in the amount of tax paid.
Whether now is a good time to sell is often a personal question more than a legal one. Whilst the market is unsettled and a little uncertain, that doesn’t necessarily mean that it is not a good time for you to sell.
We work with a number of sellers to help them prepare for sale, tidy them up and conduct legal audits. We can also discuss structuring or introduce you to corporate finance and business agents who could find you a buyer.
A member of the Corporate team here at Chattertons would be happy to discuss confidentially any thoughts you are having on a free, no obligation basis.