We get asked the question frequently from potential sellers of businesses: is this a good time to sell my business in RI or elsewhere? Not surprisingly, we hear the same question from the other side of the equation – people considering buying a business.
The “800 pound elephant in the room” is COVID-19. Is this an impossible time to get top value for a business, an owner might reasonably wonder. At the same time, buyers are looking to see if this is a “buyer’s market” and to see if there are some really good deals around.
The answer to the two questions, is this a good time to buy a business, and is it a good time to sell a business, is a qualified “yes” to both.
Overall, COVID-19 has exacted a very negative toll on the American economy, as everyone knows. Here in New England, certain segments of the economy, such as restaurants, gyms, barber shops, and small retail operations, have been very hard hit. With the shutdowns and restrictions in place, a lot of foot traffic into these businesses just didn’t happen. But, in those industry sectors, the resilient and entrepreneurial owners have found ways to pivot – from take-out and outside dining to several other solutions. These “Main Street” businesses in many cases have experienced a decline in revenue and therefore a decline in value. It may be a good time, if the owner is able, to “hold” these businesses for better times. If this is not possible, a sale may still be a possibility, especially if the real estate housing the business is owned. Talk to a qualified Business Broker to get the accurate answer. They can change your worries from a could to a “when should I sell my business in RI?”
The case can be made that business owners in industries that are seemingly unaffected by COVID – such as HVAC companies, Marinas, Trucking, manufacturing, service businesses, distribution and online/ecommerce businesses – are perhaps in the best position to sell. In many cases, businesses are being bid up by multiple buyers to well over their financial value. In fact, this bidding strategy was very successful and enabled the very happy acquisition of Murphy’s Air Conditioning, Heating and Plumbing of South Yarmouth, MA. That sale marked ROI Corporation’s 22nd HVAC & Plumbing business sold in the last few years. In short, for businesses still performing well, it is still a strong seller’s market. Inventory is in short supply and buyers are anxious to put their money to work.
By way of explanation, in our business brokerage firm, April, May and June transactions and deals going under agreement were down 25%! In July and August our closings and deals going under agreement are making up for the 2nd quarter slow down, and we expect another record year!
How can things change so quickly from good to bad and back to good? There are several reasons in my opinion…
First, on SBA lender financed deals, the banks got the PPP loans processed and were able to again focus their attention on Business Acquisition SBA 7A loans. These loans are the backbone of lending for individuals wanting to buy a business with a purchase price of under 6 million dollars in this country.
The second major reason is there is still a lot of money in the hands of Private Equity Groups, Family Offices and high net worth individuals looking for a good return. Once these groups could adjust to the new normal, they are back in the market with a vengeance looking for good companies to buy.
Although these times are unusual, the guidance we offer to individuals seeking to sell a business is the same now as it is in non-pandemic times. It’s also the guidance that has led successful transactions in MA, RI, NH and more. Many wondering if they even could sell their business and keep to their retirement plans have felt relieved to learn “I can sell my business in RI, or anywhere in New England”.
Now, as in any other time, a seller should seek a strong opinion of value from a qualified business broker and make sure that he/she has the foundations and fundamentals of the business solidly in place.
Some of the documentation that will help both buyers and sellers arrive at the worth and viability of a business:
- Tax returns: the business owner should have three years’ returns at his/her fingertips. Not on extension is much preferred by buyers and banks.
- Profit and loss sheets: documentation that will show how the business has done need to accurate and available each month.
- Data on what the concentration is of the book of business. If the company does more than 20% of its business with one client or entity for example, that could be considered a risk by a buyer.
- How’s the cash flow? What percentage of the business is recurring revenue? Recurring revenue models are generally more appealing than ones where there is no ongoing source of revenue and the business depends on “one off” sales.
- Will the team be prepared to remain after the sale? Are there employment agreements?
Whether you are a buyer or seller, there are opportunities in this market.
Please contact us for an initial consultation and insight into the value and current salability of our business. We are happy to help!
About ROI Corporation
ROI Corporation, based in the Boston market, has been involved in the sale of businesses and real estate in over 30 states since 1997. They also assist in the transfer of business ownership between generations and to key employees and management teams. ROI serves all of New England including MA, NH, RI, ME and CT with two divisions; a main street division serving smaller businesses as well as their middle market M&A division. Their Marietta, Georgia office, specializing in Service Distribution & Manufacturing Companies, serves the southeast United States. For more information, please visit us on the web at www.roimergers.com or call (781) 682-6209.