Many private businesses survived the pandemic crisis of 2020 and have now stabilized, but for others, the perfect storm is still raging. How can business owners ensure the survival of their businesses and the ultimate positioning of their business for sale? Questions many business owners are asking BMI advisors:
- Should I sell my business in this unstable environment, or is it better to wait until the political dust settles and the economy improves?
- How should I set my business on a stable path and steer it toward the future?
- What should I do to enhance my valuation and prepare for an exit in 2021 or beyond?
The good news is that demand is still strong for profitable businesses. Industry sources are reporting that M&A activity surged in the second half of 2020 and is expected to remain strong for the balance of 2021. Mergers & Acquisitions magazine recently reported that strategic and financial buyers still have the appetite to do deals. Private equity funds and corporate cash reserves are at record levels and will need to be deployed, much of that will be spent on M&A opportunities. Lenders are offering financing to drive that deal flow on acceptable terms. Some of the activity is certainly driven by potential increases in capital gains tax rates in the future.
Nobody has a crystal ball–looking ahead in 2021, much will depend on the rollout of the COVID-19 vaccine, implementation of the Biden administration’s $1.9 billion American Rescue Plan, and revision of the tax code. For companies that rely on in-person contact (such as travel, live entertainment, hospitality), there will still be a struggle for some time. But many businesses are stable or thriving during the crisis, and we still see strong interest from buyers: not just in the technology space, but firms like commercial contractors, business services, and home healthcare providers. This year we expect to see increased demand for companies involved in green energy and infrastructure.
What it boils down to is playing to your strengths. This is what leading consulting firm BCG calls “Building Your Uncertainty Advantage.” BCG found that some organizations are much better at managing uncertainty, pivoting to new opportunities, and rebounding faster. They say that “companies don’t need to reinvent themselves to gain uncertainty advantage. They just need to become better at detecting signals, more decisive in acting on them, and more proactive in building practices that foster resilience.” Whether you are a service provider, manufacturer, or distributor, you can build this advantage into your organization by:
- staying relevant to existing customers and expanding customer base;
- rationalizing products and supporting profitable lines of business;
- implementing detailed cost control and cash management;
- developing a more efficient, flexible supply chain, and
- protecting key employees and recruiting new talent.
For most business owners, their company is their main asset, and they should be paid fairly for their life’s work. When preparing for sale, certain decisions have to be made. Maximize profits or reduce takes? Will I recoup my investment if I increase inventory or purchase new equipment? The answers will affect the long-term prospects of your company, which translates directly into the valuation. If you’re wondering how to prepare for an exit in the next couple of years, BMI’s Tom Kerchner wrote an informative piece, “Preparing To Sell Your Business.”