For most business owners, the decision to sell is based on a retirement age or hitting a specific financial goal. With some owners, the decision is made because of burnout or one’s health. One should consider business risks when setting a timeline to exit, as a specific date might not be a good time.
In our 38 years in the M&A business, it has almost always been a seller's market. There have always been many more buyers than sellers. But that may change as the risks of being in business continue to increase. Following are some risks to consider as business owners consider their exit plan:
- Tax rates and interest rates. We have seen increases in the last year which have impacted values of companies. If rates go higher, it could negatively impact values.
- Unforeseen crises. Covid 19 took a toll on many businesses, and it’s unknown when the next global or national event will take place.
- Employees. Are you at risk of losing key employees? A good management team is very important to a successful sale. It’s a good idea to do an employee assessment to see if you have any issues with drug use, sexual harassment or any other negative situations that could affect a sale. Consider that potential buyers may run background checks on business owners and key employees and that past issues can threaten a sale.
- Available capital. Is your industry thriving or dying? Can your business continue to grow without an infusion of capital?
- Facilities. If you are close to outgrowing your current facilities, committing to a larger facility will likely impact earnings (and therefore sale price). Be sure there are no environmental issues related to your facility, whether you own or lease the space. Have contingency plans in place for any natural disasters or cyber security threats that could negatively impact earnings.
- Customers. If you have customers that make up more than 10 percent of your total revenues, it’s time to diversify. Customers can leave, go out of business, or sell to another party.
- Reputation. If there is any negative PR from customers, former employees or the general public, address them now. Social media plays a bigger role than ever in shaping public opinion, so investment in a social program may be the answer.
- Compliance. Determine whether there are threats to the organization or financials from violations of laws, safety issues, regulations or codes of conduct.
- Other risks to consider. Competitor risks, political risks, supplier risks, technology risks, credit risks, internal operation/process risk, product risks and many more. Do what you can to minimize these.
You know your business better than anyone. Talk with your close advisors and family as to the best timing to exit and keep in mind the economy, your health and all possible risks. It’s a good idea to have everything in order so you’re ready to sell when the time is right.
For help identifying and mitigating risks specific to your business or industry, contact O&O at 913.648.0185 or firstname.lastname@example.org.