2020 was unfortunately not kind to many small businesses, so a number of business owners are wondering what to do moving forward. The good news is that with widespread COVID vaccine distribution on the horizon, we are hopefully soon to be coming out on the other side of this pandemic. Businesses in Florida are already starting to see signs of recovery with sales bouncing back, and we are hoping that trend only continues upwards. If you want to sell your business now, but your 2020 numbers are way down from your 2019 numbers, then you’ve got a few options to consider.
Asking Price Reflects Drop in Business Performance
Pricing a business that has seen a drop in owner benefit for 2020 is tough. Normally, businesses are valued based on current financial performance, so is it reasonable for a buyer to just ignore the 2020 numbers and focus on the performance of 2017-2019? Should the 2020 numbers be factored into the purchase price? The true answer to those questions probably lies somewhere in the middle at this point in time. In the future, a year or two from now, 2020 will be an anomaly for many businesses who were able to recover, and most likely 2020 numbers will be ignored in valuations, because everyone will agree that there was a big reason, beyond the control of the business owner, for the blip. Unfortunately, we are not there yet. 2021 is seeing some recovery, but most businesses aren’t immediately back to where they were in January or even February of last year. More than likely, for most businesses, it will be a slow crawl back up to their 2019 numbers, as the economy strengthens throughout 2021. So, for a business that has seen a decline in owner benefit for 2020, be prepared for that to be reflected somewhat in the current value of the business. If you believe your business can bounce back, and the numbers are trending upwards, it might be in your best interest to wait 6 months or a year, to give your business the chance to recover. However, if you want to sell or more importantly need to sell now, be prepared to discount the value of your business to make it attractive to a buyer.
Prove to a Buyer that the Business is Recovering
From what we’ve seen, even if the business has seen a dip in owner benefit for 2020, buyers still want to know that the numbers are trending back upward, so make sure you are ready to demonstrate that. If you have the track record to show that your business is on the rebound, then you are much more likely to sell your business. Buyers want to purchase a business that they feel is a solid investment with good potential to grow. If your numbers over the past several years are strong, with only 2020 being weak, but 2021 is climbing back up, then you are in a great position to sell. We could also make a very good argument to buyers that the price of the business is reflective of the financial performance that it has proven in the past, but we can only do that when we are seeing a current upward month-to-month trend. This would really be the best-case scenario for the average business owner out there.
Wait Until Your Numbers Are Back Up
If you whole-heartedly believe that your business will bounce back from a bad year in 2020, then if you can, it might be in your best interest to wait to put it on the market until you are consistently back to at least 2019 numbers. That way your business valuation won’t take a hit if you list it now and it is priced based on current performance. Keep in mind that businesses on average take about 280 days to sell in Florida, so make sure to get your business broker involved and partner with him or her early, so that you can figure out how to best price and market your business for sale, once your business has recovered and you are ready to go. The one bummer with waiting to sell is that there has never been a better time to sell than right now. We have a record number of buyers currently shopping for businesses in Florida and the SBA loans to acquire an existing business have never been more advantageous. So, we encourage business owners who would like to sell to get their business listed and take advantage of this historic time in business sales.
What if My 2020 Numbers Were Way Up?
If your business was fortunate enough to hit a major windfall during COVID times, and your numbers are through the roof in 2020, then consider yourself extremely lucky. We have actually seen this in several of the businesses that we have done valuations for recently. The key to getting the highest selling price for your business is to sell it when it’s at its peak performance, so many business owners are wanting to cash in on their good fortune and sell right now. The biggest question is…will the business sustain these kinds of numbers in non-COVID times? In other words, is it reasonable to assume that the numbers will remain consistent through 2021 and beyond or will it drop off once things get back to “normal?” That is what a buyer will want to know. Furthermore, having confidence that the current numbers will continue is what the buyer will be paying for. So, when we do our valuations on a business that has seen a sharp increase, we need to be careful about this scenario as well. The business can’t just be priced and valued based on current numbers, because it depends on other factors these days. Talk with your business broker about the correct pricing strategy you should adapt if you’ve had tremendous success in 2020 and want to sell now.