November 19, 2020 6 min read

Opinions expressed by Entrepreneur contributors are their own.

In 2013, when M&A expert Michelle Seiler Tucker wrote Sell Your Business For More Than It’s Worth, her research showed that 85-95% of all startups between 1-5 years old were at risk of going out of business. 

Last year, however, when she wrote Exit Rich, she conducted the same research on a sampling of 27,636,360 companies and learned the business landscape had changed dramatically. In 2019, (prior to Covid), only 30% of startups of 1-5 years will fail. That is excellent progress. However, for that same sampling, a whopping 70% of ventures in business for 10 years or longer were in danger of failing.

On a daily basis we’re reading headlines about the failure of box retail stores like Toy “R” Us, JC Penny, Stein Mart, etc. But what we’re also experiencing even more acutely, according to Seiler-Tucker, is the plethora of mom and pop businesses on every corner, every town, and every U.S. state going out of business right now.  

Unfortunately, many of these owners are baby boomers who’ve dedicated their lives to growing a business, making huge sacrifices along the way. These owners are being forced to sell for pennies on the dollar, closing their businesses down or, even worse, filing for bankruptcy. Sadly, when owners file for bankruptcy, they not only lose their business but their family’s assets as well, she says, as most business owners commingle business and personal funds and assets.  

Related: 5 Tips to Successfully Sell Your Company

The devastation is great when fail because they are the backbone of our and employ more than half the U.S. workforce.  When small businesses fail, jobs vanish, and the economy falters. As such, saving small businesses amidst the pandemic is of utmost importance. 

Of the businesses that don’t fail, 90% do not successfully sell for a variety of reasons. However, this portion of our economy’s outlook does not have to be gloom and doom, as many of these businesses can survive and can ultimately be sold for a profit. So, what does it take to prepare your business for a successful near-term or eventual sale?

Preparing your business to sell

The number one mistake business owners make, Seiler-Tucker says, is not planning for their eventual exit. Most owners don’t think about selling until they have to, often due to an internal or external catastrophic event.  When such an event happens, it is typically too late to sell because the business is already in duress and trending downward. The best to sell, of course, is when your business is doing well.   

With this being said, could 2020 or 2021 be the right time to sell? Seiler-Tucker says, “It depends on your industry. Many industries are thriving and will have their best year ever during 2020, whereas many others are attempting to pivot, have taken a nosedive, or are barely hanging on.” 

The industries doing particularly well because of the pandemic include many types of technology and e-. (Amazon’s growth, in fact, caused the net worth of founder , to nearly double.) Other industries were not as fortunate, with the hardest hit including most service industries such as restaurants, and the entertainment industry. In April 2020, there was a 26% spike in companies filing for bankruptcy with many within these sectors leading the way. 

However, as Seiler-Tucker notes, “There are actually more buyers for good businesses than there are good businesses to buy. This includes five types of buyers: 1) first-time buyers, 2) sophisticated buyers, 3) strategic/competitive buyers, 4) turnaround specialists, and 5) groups. Private equity, strategic buyers, and competitors in thriving industries are buying up businesses avidly right now, actually creating a bidding war and paying more money for synergies that will catapult the acquiring business to another level.”  

If your industry is dying, there are buyers looking for great deals and turnaround specialists who are buying failing assets to fix, grow, and sell, she notes. 

Related: Know When and How to Sell Your Business

If you are in a failing industry due to Covid-19, it is imperative to determine how long you can hold on. You may need to cash out, merge or look for a strategic partner that has working capital to keep your boat afloat, she says. Selling during distress is not optimal; however, some owners do not have a choice, and selling for less is usually better than closing or filing for bankruptcy. 

If you can hold on and pivot, you should do so and should prepare for eventual exit by working on the Seiler-Tucker GPS Exit Model: 

  1. Determine your destination (desired price).
  2. Know your location (the value of your company).
  3. Identify who your buyers will be.
  4. Know your time frame.
  5. Determine your why.

In addition, business owners should work on their business, not in it! Many businesses go out of business because they do not “AIM”: Always Innovate and Market. This is vital in the present moment, as the ability to pivot and adapt in the face of Covid-19 could make a crucial difference to the company’s ability to sell well or survive. 

In addition, Seiler-Tucker states, “Owners should concentrate on building a scalable business that runs on all six cylinders,” which she describes as the 6 P’s: 

  1. People: Do you have the right team?
  2. Product: Does your product have a niche or ?
  3. Process: Is your business efficient and/or proprietary?
  4. Proprietary: Do you have intellectual property? (Brands, Patents, Trademarks, Databases, Contracts in Place, etc.)
  5. Patron: Do you have a loyal client base who will go out of their way to purchase your products and services?
  6. Profit: Are you operating at the highest profit margin for your specific industry?

The economic forecast for many small businesses is grim as they face the fiscal ramifications of Covid-19. However, adhering to these principles will help to mitigate the current issues and help these ventures stay alive and pivot or rebound when the time is right.

Related: As B2B Sales Go Digital During COVID-19, Companies Mustn’t …

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This article is from Entrepreneur.com

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