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How To Prepare To Exit Your Business During The Pandemic

The COVID-19 pandemic has upset plans for businesses across the country. Everything from planned trips to conferences and even day-to-day operations have been upended as we all adapt to what people are calling the new normal.

Patrick Galleher

Patrick is a Managing Partner for Boxwood Partners specializing in sell-side advisory for founder-owned companies in the middle market.

One major point of concern is likely how the coronavirus may impact business owner plans for retirement or an exit strategy. Maybe a shift in the environment has you eyeing the next phase of a career. Regardless of why you’re considering a way out, there are steps to being prepared to handle that sort of major life transition.

I have been fortunate to guide many businesses through the sale process. Because of this, I’d like to offer some advice to business owners and highlight some of the things they need to do if they want to gracefully and successfully exit their business.

First, make sure your business plan includes an exit.

It might seem obvious, but you’d be surprised by how often this crucial detail is overlooked. Rarely have I come across a business owner who has built their business for an exit but the ones who have planned ahead have benefited greatly.

Even companies with strong business plans can often find themselves so involved in operations they neglect crucial future planning. In fact, one study found that 58% of small-business owners have no succession plan in place. If you haven’t put together your plan yet, know that you’re in good company. Still, it’s no excuse not to take care of it right now.

Plan to exit on your own terms.

The first part of having an exit strategy is building it into the business plan. The next part is determining what you want that exit to look like. What are your goals for an exit? Are you hoping to make as much money as possible during your sale? Maybe what’s most important to you is ensuring your business will remain in good hands after you’re gone.

If you hope to create a legacy, then it pays to groom a successor for the position far in advance. Selling to a new owner, beit a family member or employee, selling internally can ensure a degree of continuity for the company.

If you were hoping to go public, being acquired by a competitor, or a private equity sale you will have a different set of considerations. In this case, there are numerous accounting regulations that need to be handled before you can think of making a deal. It might be a good idea to hire a controller or CFO in the years preceding the exit to get the books in order.

Get a professional valuation.

If you want to get a fair deal for your business, then it is important you understand the value of your business itself. That means taking a step back and analyzing your company from the bottom up. This will help you determine your place in the market and decide if the timing is right to act.

Undergoing a business valuation is a big part of this process. At the middle-market investment bank at which I’m the managing partner, performing valuations and business analysis for sell-side advisory clients is all part of standard operating procedure for any potential deal or transaction. This includes clients navigating and preparing for transactions during the pandemic.

How to paint an accurate company picture during a pandemic.

The first part is to measure your company’s performance as the crisis is happening. Potential buyers will want to know how your business held up under pressure, how you managed the crisis, and any steps that mitigated its effects. Buyers and investors will also want to see hard numbers to understand how COVID-19 impacted the business’s financials with comparison to “normal” conditions.

Quantifying the impact of the current situation is crucial to presenting an accurate portrayal of the company. Track variances against your initial budgets and maintain data that supports any financial adjustments to have a picture of the business in both normal and abnormal times. Our current situation is not normal and the numbers should explain that. These extra preparations will give buyers confidence they are making an informed decision.

I expect companies will actually get credit for a higher EBITDA (earnings before interest, taxes, depreciation and amortization) base as a result of COVID-19-related disruptions. The catch is the data must be tracked, quantified and supported to accomplish that. With a comprehensive analysis that accounts for the current situation, business owners can find the firepower they need to still negotiate with confidence.

The sale or exit from your business can still get well underway even under pandemic conditions. By taking time to put together a proper exit strategy with accurate, reliable data, you’ll be that much more prepared for anything the world can throw at you.