Opinion - Invest in You: Ready. Set. Grow.

Op-ed: How to sell your business and retire during the coronavirus pandemic

David Ryan, founder and managing partner of Upton Financial Group
Key Points
  • The average small business owner in America is 60 years old, according to Barlow Research Associates, and 40% of owners are 65 and older. 
  • Many are considering selling out because they don't want to put their time, energy or resources into rebuilding during this recession because of their age, according to recent data from Emergent Research.
  • The asset values of essential businesses in sectors such as online education, delivery and e-commerce are in hot demand, according to BizBuySell's Q1 Insight Report.
Restauranteur Geoff Tracy sits for a photograph at Chef Geoff's restaurant in Washington, D.C., U.S., on Thursday, March 26, 2020. Images
Andrew Harrer | Bloomberg | Getty Images

Many business owners who want to cash out and retire are worried they won't be able to do that for years because of Covid-19. Nothing could be further from the truth. Investors with capital are always looking for opportunity, no matter what is happening in the market.

While 81% of advisors expect valuations to decline, according to the Q1 2020 Market Pulse Report published by the International Business Brokers Association, M&A Source and the Pepperdine Private Capital Market Project, every business is unique. Main Street valuations historically trade within a 10% range, and the majority of advisors see today's market as a seller's market for businesses valued between $2 million and $5 million.

Some essential businesses have seen their values going up in today's environment. Eleven percent of businesses have seen no impact from Covid-19, and another 11% saw sales rise because they work in industries such as delivery, online education, e-commerce and others that are now in hot demand, according to BizBuySell's Q1 Insight Report.

Of course, it will be challenging to sell businesses that have temporarily been shuttered during the pandemic, because valuations are based on historical financial data. More than 45% of business sale transactions have been delayed, according to the Market Pulse Report.

However, if they reopen their businesses and recover, many owners will be able to position them for sale.

So what should you do if you want to sell in the next year or two? Here are my recommendations, based on more than 25 years of experience as a business broker.

Get clear on your overall goals 

The top reasons for selling are generally retirement, burnout, and health challenges. The average small business owner is 60 years-old, according to Barlow Research Associates, and 40% of owners are 65 and older.  Among older owners, 40% say they are now considering closing their businesses permanently, because they don't want to put their time, energy or resources into rebuilding because of their age, according to recent data from Emergent Research.

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If your business has been struggling since the pandemic and you don't have a strong desire to continue running it, you may be better off selling it at its current valuation than putting more money into it. If you drain too much of your personal assets trying to save the business, it will be hard to move on with the next phase of your life. Many owners who have saved enough for retirement end up delaying that day because they've tapped their retirement savings to rescue a business that will take many years to come back, if it does at all.

Clean up your financial practices

Many entrepreneurs treat their business as a piggy bank, running expenses through it that may pass muster with the IRS but are, in reality, personal. If you're among them, now is the time to stop paying for these expenses through the business so you can see what the true profit is.

Have your CPA help you clean up the books so you can give the true picture to potential buyers. They (and the bank that finances the deal) will want to know exactly where the profits come from — meaning from which customers and which locations — before moving ahead with a transaction.

Identify risk factors that could derail a sale

Risk factors like outdated employee policies, outstanding litigation, slow-moving inventory and low-margin customers or products can scare buyers away. You must be able to smoothly transition the business to the new owner, so it's important to identify these red flags early.

The sooner you pinpoint any risk factors, the more quickly you can identify them and fix them — or determine that it's not worthwhile to invest in fixing them and adjust your asking price accordingly.

Many buyers are willing to purchase a business that is distressed or requires a turnaround if they think it has potential, but you need to be candid with them to come up with a deal that works for both parties.

Scott Ford, a financial planner at Carson Wealth in Hagerstown, Maryland, and Kingsport, Tennessee, whom I work with, recently acquired another wealth management firm where the owner was struggling to take care of a large client list and pay down a large bank loan. Ford wanted to buy the business because it was a valuable opportunity to acquire clients. He later sold a stake in it to Carson Wealth, his parent company.

Ford and the seller structured the deal so that there would be an initial payment to the owner and a later one, pegged to what the true value of the business turned out to be over a two-year period. He brought in a great leader for the business and then invested heavily in education, team building and the firm's messaging so that the deal worked out well for both parties. 

A good business broker will be able to help come up with flexible deal structures and capital sources to make a deal like this possible. Some buyers who are using SBA loans to purchase a business are now taking advantage of the Small Business Administration's Debt Relief program, part of the CARES Act. The SBA will pay the first six principal and interest payments on a 7(a) loan, as a subsidy. All new 7a loans that close between March 27 and Sept. 27 are eligible. This is a subsidy rather than a deferment.

Battle-test your operations

Buyers want to know that if they acquire your business, they'll be able to run it successfully — even in today's environment. Before you put it up for sale, make sure it is actually possible for someone other than you to manage it.

If operations have been shuttered due to the pandemic and you have had to adjust your business model, take a week's vacation after opening your doors again and see how well your team runs it in your absence. That will give you a good idea if you need to fine-tune your systems. If you can't even consider doing that because you know the whole place will fall apart without you, now is the time to change that.

Consider anything you do to improve operations an investment in your future. Any systems you put in place to help the business run more smoothly will give you an edge in selling it.

—By David Ryan, founder and managing partner of Upton Financial Group, an advisory firm specializing in business value strategy and solutions

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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.