The early days of 2020 saw M&A valuations at an all-time high. But the pandemic brought the entire industry to a sudden, screeching halt. Businesses are beginning to dust themselves off, and M&A is moving again. Owners who are considering a sale now may worry about how COVID will affect their plans, their company’s value, and more. In some industries, valuations have rebounded to pre-COVID highs, and sometimes even higher. But there is more scrutiny through due diligence.
Business owners must be mindful of a number of factors as they weigh the benefits of a sale. What hasn’t changed is that buyers are still seeking solid companies with a sound financial footing. They want businesses that invest in their people and management, and that are not excessively dependent on their owners. They want well-run companies, with reliable and effective systems in place.
What has changed is the degree of scrutiny buyers extend to businesses. They will be looking more closely at sales channels, personnel, margins, and supply chains, especially to the extent that these things have been impacted by COVID.
One of the best things you can do to add value and generate buyer interest is to build a strong and competent management team. The ability to adjust and adapt is critical to future success. Additionally, you must consider whether your business is classified as essential in this new environment. Essential businesses may be more valuable. Non-essential companies must find alternative routes to demonstrate their value.
Perhaps most importantly, you must be thoroughly prepared for what will likely be an exhaustive and time-consuming due diligence process. Business value is closely tied to a predictable cash flow. The more you can demonstrate this, the greater your success will likely be.
In addition to setting up your company for a high valuation and high buyer appeal, you must also consider your own exit planning strategy, since selling involves tax, legal, and financial issues. Your goal should be to ensure you end up emotionally and financially prepared to make an exit when the time comes. At a minimum, you need to take these steps:
- Establish your exit goals and objectives. Do you want to start a new business, move into retirement, or something else?
- Identifying these goals can help you determine a plan for achieving them.
- Identify your exit options. Partner with an exit advisor to determine if now is the best time to sell in light of your goals, the current financial environment, and the potential implications of the current tax situation.
- Protect your business and preserve your values. It’s important to turn a profit, but if you want to preserve your legacy, you need the right advisor in place. An M&A advisor can help you protect your own future, as well as the future of the business you’ve invested so much into.
About Vision Point Capital
For over 20 years, our team has supported our clients with comprehensive advisory services to help them with their complex business valuation and transition needs. Few other firms offer such a complete suite of business transition services as it relates to M&A, Valuation, and ESOPs.
Our client’s personal goals are at the heart of everything we do. We are well versed in advising clients across a broad range of industries and help them manage and navigate valuation and all the business transition alternatives available to them. In fact, when you work with Vision Point Capital, you leverage our resources, experience, and expertise to help you grow faster and optimize value for reaching a successful business transition.