Coronavirus: Buying And Selling Small Businesses During These Times

Comments & Replies: 9     Views: 3668     Posted By: Peter Siegel MBA  Peter Siegel MBA: BizBen Founder, Lead Advisor

During this time period of being "sheltered in place" we discuss strategies, best practices that business buyers, business brokers, agents, and owner/sellers are practicing or thinking about during these times of being immobilized. Also discussed are business types that may be good purchases.

Topics: Business Brokerage, Buying A Business, Selling A Business     Tags: absentee run, buying a business, selling a business

If you are considering getting into a business, you must consider the businesses sustainability. The basic business model of the Coin Laundry (or vended laundry) is designed around the business's sustainability. In fact, laundries are known to require long term leases to meet the laundry model. The equipment is expected to be replaced several times in its lifetime. The models are flexible and modifications are rewarded. So today, that sustainability is being tested.

The laundry business in the time of Coronavirus is surprisingly strong. Granted, it is early, people are also getting caught up on chores, preparing for a long term and are washing built up collections of clothes from the backs of the closets and the full gravity, as of 3/26/20, hasn't fully sunk in. We are sending out and sharing ideas as to how to operate safely and very stringent cleaning by attendants. We have also recommended to hire more people, keeping reserves in case of illness and staffing 100% of open hours. So far, the dozen of laundries I am in closest contact with in California, are reporting increased revenues. How this will go on is of course unknown, but what we do know is that the laundry business is not only a "Necessity of Life Business" but is also a Community business. I believe and have seen it demonstrated time and time again, that if you take care of your community - your community will take care of you. By keeping the public safe, you are also providing them with a safe place for distance socialization. People will continue to do their laundry.

In the Financial plunge of 08' and 09' the laundry business also held up strong; accepting in areas that saw a large downtrend in populations. As a result of the event, the laundry business grew and it changed. Since the financial collapse, small businesses have fared well by improving their customers experience, as many of the laundry businesses did. This created new demands and possibilities to the laundry owner. The owners that met the challenge did very well.

To laundry buyers: As in 2009, opportunities abound. Many laundry owners that are not taking care to improve their laundries services, make the laundry safer, and consider their customer service, will not fare well and will consider selling their laundries. The possibility of purchasing a laundry at the best possible prices is now. The opportunity window may go on for some time or it may close in a few months. So, while in our social-distancing period and that we are unable to do too much, you might consider looking more into the laundry business.

Our brokerage works within the niche marketplace of the main street healthcare business opportunities, whether it be skilled home health agencies, hospice agencies, non-skilled home care agencies, medical practices, congregate living health facilities, residential care facilities for the elderly and the like.

This most recent pandemic has brought about an abundance of the need to prevent the spread of infection and it has brought to the foreground the need for healthcare providers to help in educating and providing those many essential healthcare services. Not knowing when we will be exiting this COVID-19 world, the one thing for certain is the impending and continued need for healthcare services.

The healthcare business opportunities are plentiful with us working with numerous active sellers throughout California. We are seeing a healthy and otherwise normal influx of business sellers looking at selling their respective businesses. The motivation for business sales is what we would consider the norm, meaning sellers retiring, sellers with health issues, partnership issues, cash flow issues, divorce issues and the like. We have yet to see or hear a seller contact us with a Coronavirus based need to sell.

What we are hearing from our sellers is the need to have their clinical-staff and non-clinical staff well equipped with the knowledge surrounding infection control by using and implementing concepts such as hand-washing, using gloves, using and not touching their facemasks and the like. We have also heard from our sellers that it is not only the healthcare provider who is concerned with contracting a virus but the patient/client/resident/their family members are concerned with the healthcare provider bringing the virus to them. We had one hospice provider who told us that they had to have a Skype session with their nurses to help educate and explain the new way in which they needed to render their skilled services, whether it be by monitoring themselves for symptoms or using universal precautions much more stringently. We had one congregate seller tell us that the price for gloves almost tripled over the last couple of weeks.

Will there be issues with the healthcare business providers? Without a doubt the world will need to adapt to the changes and in the healthcare world dealing with this virus will require a learning curve. For example, we anticipate a lot of our sellers/providers to look into a telemedicine model to render their services.

Will buyers be deterred from exploring their options when it comes to healthcare business opportunities? We have spoken with two buyers, out of a large pool, that has expressed their concerns with taking a "wait and see" approach. Both buyers alluded to maintaining their liquidity. We are having a good amount of buyers calling us to look for SBA 7a healthcare businesses which may be given a boost with the pending Coronavirus legislation that will work with small business owners. We have had buyers looking at a possible increased need for healthcare services with buyers looking at increased patients and increased revenues.

As a brokerage, we have had to adapt to a new way to interact with our clients and customers. We have been doing mostly Skype conference calls and using on-line tools to help us facilitate the exchange of information. We have numerous active transactions in place with our buyers seeking a non-normative way of conducting their due diligence, meaning on-line interviews, online collaboration, and the like.

We are not seeing buyers shying away from healthcare business opportunities nor are we seeing sellers from doing any type of panic-selling; we are seeing a normal and otherwise healthy marketplace. We believe that having certain best practices in place in these times as well as our "normal" times are the foundation of a thriving business brokerage. We have been able to sustain certain behaviors such as having NDAs in place, having buyer profiles in place, asking for proof of funds, recasting our seller's financials, creating an offering memorandum to buyers, educating our sellers and buyers in the transaction process, working with local lenders and the like.

Today, March 26th, 2020, Federal Reserve Chairman Jerome Powell made a rare television appearance on the Today Show to address the concerns and fears of the current financial crisis regarding the Coronavirus. "We may well be in a recession," he said. "But I would point to the difference between this and a normal recession. There is nothing fundamentally wrong with our economy. Quite the contrary. We are starting from a very strong position." Another statement of significance Powell said, "The virus is going to dictate the timetable," and, "The sooner we get through this period, and get this virus under control, the sooner the recovery can come."

We are living in an unprecedented time with the impact of the Coronavirus, not only is it affecting our homes, but also small businesses, in a way that has never happened before. I agree with Powell and other officials that the faster we get the virus under control, the sooner we can return to normal, and so the way that buyers, sellers, and business brokers/agents conduct themselves during this crisis should be geared toward that successful conclusion. Since new announcement are always coming, buyers/sellers/brokers should keep up to date on the latest from their state Governor and city officials, as well as on the federal level, but the state and city, will ultimately have more instruction, because of their unique and specific power. I keep updated on the latest events through Twitter and Facebook.

Business buyers, sellers, and broker/agents should all be conducting their business by email to reduce face to face contact. NDAs and contracts can be sent over the computer, with regular phone contact. If there is a liquor license transfer involved, the application will be mailed as opposed to a face to face submission. If a hard copy signature between broker and/or buyer and seller is needed, then use overt caution and just mail it, like the old days.

I'm not a health expert and so I don't know how long this will last, but if asked, which businesses I would look at buying during this crisis, I would say, pizza shops and drive-thru taco and burger restaurants. Currently in California, take-out delivery is still allowed, and so businesses where consumers are used to purchasing food that way, have trended more successful as opposed to other types of restaurants that are trying to increase their take-out delivery.

Were you thinking about selling your business before COVID-19? This incredible and unique situation may have you wondering if you should wait another year or two to sell your business, not necessarily. The following Top 5 Things to Consider message applies to business owners that had good stable businesses with steady growth prior to the COVID-19 outbreak and were considering selling.

If you are concerned with what 2020 has done to your P&L and Balance Sheet, your concerns are valid. However, what happens after will determine if your business can be sold and for what price.

#1 Obviously, the top winners, if there are any, are the businesses that provide essential services. The market barely got over the 2008 financial collapse, cautious investors number 1 request for "type" of business is "recession resistant". Businesses that could stay open and continue thrive during this climate will have added value now and in the future.

#2 Businesses that have/had a solid diversification of industries and clients will show the best resistance in all financial climates. This means that if your business was even able to stay open and it also served a wide variety in segments it was less affected. The value of this will become obvious to buyer even if the business suffered a loss. If your business was closed but you were able to find some new revenue stream, then you too will benefit from your Darwinian business style.

#3 Businesses in the Service sector are usually lighter in fixed overhead and able to weather challenging financial times by reducing their main expense payroll. The ability to adapt makes this type of business very appealing to buyers. However, I will caution that running this type of business always requires great care towards the employees, employees are both the COG and the top asset of the company.

#4 Traditional SBA funding parameters are fundamentally changing due to the stimulus bill that just passed the Senate and is waiting for the House and the President to approve. The SBA guaranty is traditionally 75% of the amount a buyer borrows. The CARES Act legislation increases the government guaranty to 100%. This will give banks a lot more confidence to approve a loan. Banks must still be able to collect on a guaranty from the government which is not always a sure thing, so it is not a rubber stamp. Additional changes to this program are removing the personal guaranty's, SBA fees and collateral requirements. Lending is done on a case by case basis. If the narrative for why the bank should take a chance on doing the deal makes sense to underwriter, then the deal should still be able to get done.

#5 Valuation is the big concern for a potential sale for 2020. The selling of a business is never black and white, it takes a close examination of ALL the facts. This event is unprecedented, and it will surely affect all business segments across the board. However, if your business can resume at the same levels that it operated at prior to this disaster, then I argue that it has proven its worth based on a multiple of last year's earnings and should even receive a premium for its ability to come out the other side unscathed.

This is the time to take a Darwinian approach to your business. If you lost something that won't be able to come back, then you need to go outside the box to replace it. Keep a positive attitude and don't be afraid to ask your employees, vendors, customers, advisors for suggestions on how you can service them. We will get through this; remember you are not alone.

Disclaimer: Events are rapidly unfolding banking information has been approved the Senate and is awaiting approval from the House of Representatives.

In the midst of the current state of affairs with the Corona virus causing all kinds of changes for everyone there are some positive aspects when it comes to buying and selling businesses.

We all run so fast in the Bay Area that it's hard to remember that one has had the plan of buying and owning their own business. Although my phone is not ringing at quite the same pace still have buyers that are calling. The calls may be fewer but the quality of the calls are made up of more serious buyers. People have time to think about their decision to purchase a business and the time to research what is the best business for them.

The closing of businesses is a hardship yes, but this to will pass and when it does everyone is going to be so sick of being at home that the businesses will come back with a vengeance. The population will be ready to shop, eat out socialize at pubs and taverns, get a massage or their nails done. A buyer can have the time to plan the opening and make a statement and lasting impression when the world resumes.

If owners have been thinking of selling they have the time to get their books in place, equipment list created, lease documents copied so that its a ready package for any potential buyers.

A few early observations on the Coronavirus' impact on business sales, drawn from numerous recent conversations with lenders, business brokers, valuation experts and hopeful sellers and buyers of businesses:

1. One of the toughest issues will be determining the impact on the valuation of a business. For example, say you have a very healthy business for sale, a restaurant with strong historical financials. It temporarily shuttered its doors some days ago, and let go (at least for a while) a well trained staff. With valuations using past performance to project future cash flow, how can you get a handle on this situation? It is certainly challenging.

2. You may need a strong dose of flexibility and creativity in getting a deal done in this environment. 3rd party lenders, who are obviously risk adverse, are going to most likely have very conservative underwriting occurring, making it very hard, at least in the short run, to get 3rd party financing. The best alternative is seller financing, or at least a significant amount of the financing being a subordinated (lower priority for payments & security) carry-back Note to the Seller, which would provide greater protection for the 3rd party lender. The appetite of a seller for considering such a deal will be dependent on a variety of factors, such as how strong is their desire to sell, the amount of the down payment that the buyer can make, the business-specific experience that a buyer brings to the table (which hopefully will increase the odds of success), etc.

3. The question I am being asked repeatedly by potential buyers is how do you deal with the uncertainty of what the cash flow of a business will be in the coming months or years -- will the business come back strong, or will it struggle for a more prolonged period, especially if important staff are lost in the process? And how do you factor that in when determining a fair price for both the seller and the buyer? If you have seller-financing as referenced above, a deal structuring possibility is the potential for discounts being applied to the Note if the business does not operate as strongly in the future as the parties anticipate (or hope for!). You are trying to spread out some of this risk between the Buyer and Seller, and finding ways to do this will be essential to successfully close many deals.

4. Certainly another aspect is identifying businesses which are "essential", as so far specified by the State government: health care, auto maintenance and repair, construction, etc., to name a few -- these are operational for the most part, and accordingly should have less negative impact on the bottom line. For other "non-essential" businesses, there may be opportunities for buyers to get more attractive pricing for a period of time. Careful due diligence and assessment will be critical to try to differentiate between businesses that may temporarily be hurt, and those that are going to be significantly impaired for a lengthy period.

5. One final thought - depending on the lender, there may also be the opportunities to get some long-term financing at very attractive interest rates (if you can qualify the deal) for a period of time. Lower long term debt service for a Buyer can certainly help weather a period of reduced profitability while a business gets up to full steam again in the future.

I have utilized the following practices. They seem to be working efficiently to keep clients and my staff safe during this time. None of my clients have cancelled just extended their closings:

1. My Staff is working remotely, with very limited visits into the office to complete office duties that can't be done remotely one Staff member is assigned to check mail, deliveries etc. and scan items to the appropriate Staff member;

2. I have called all my clients and gave them all options of communication, fax, email, zoom face-to-face video conferencing, or phone calls;

3. We are utilizing electronic signings for documents that are not sensitive and requiring original signature;

4. For signing appointments we are doing curbside signings. The Clients stay in the car, while one of our team members conduct the notary signings;

5. The office is closed to the public until further notice, only accessible to the Staff;

6. For Clients who want outside notary signings, we arrange through our notary third-party signing service companies;

7. All mail and documents are opened with gloves and envelopes discarded immediately;

8. I send daily updates to all my clients for wellness checks, files statuses and follow up with emails.

The Coronavirus is something that was certainly not in any business owner's business plan or budget for 2020 and is of far reaching concern that affects almost all businesses. There will winners and losers in the mix and some businesses that have had to shut down may never open again. Others will thrive and grow.

Here are several suggestions to help your business survive that can be done immediately.

1) Cut all expenses that can be cut, such as, furloughing all but necessary employees, while staying within government guidelines.

2) Negotiate a reduced lease payment with your landlord.

3) Take advantage of all of the provisions of The "Families First Coronavirus Response Act", that are available to you. There are loans available that may be forgiven if you meet certain requirements at favorable interest and terms, as well. There are also provisions for businesses to receive tax credits in certain situations. This Act was just signed into law and it will take sometime to get familiar with its provisions.

4) If you are under a "Shelter-In-Place" order you can take this time to catch up on anything that you may have been putting off, like educational requirements, paperwork, planning and contacting Clients and customers.

Most business brokers feel there will be a strong demand from buyers for good businesses and many sellers will be ready to put their businesses on the market, when this is over.

What should business owners be doing during the CoronaVirus slowdown?

Strategic Planning. While this is a moment of great challenge, anguish, and difficulty for many businesses, it also is a great opportunity to take stock and do that strategic planning you always intended but never quite got around to.

Conducting a structured SWOT analysis (strengths, weaknesses, opportunities, and threats) is particularly useful to discern how best to preserve your business, grow your business, and eventually exit from your business with the most profit or return on your investment of time, talent, and treasure over the years. There are several good programs for such a "deep dive" that you can access by consulting with a trusted advisor.

Marketing. Just don't stop. It may seem like the "discretionary" or "optional" or "non-essential" thing that you can easily cut to save on expenses. But, continuous marketing is absolutely essential. And, maintaining that market presence during an economic lull is the best way to assure that your business remains "top of mind" and comes out the other end of the tunnel at a gallop with "guns-a-blazin'." Particularly important are marketing efforts targeted to your existing customer base, maintaining customer/client loyalty, providing them with services and resources you might not ordinarily offer or for which you would charge a fee, and just "keeping in touch."

What kind of businesses will buyers be seeking after the CoronaVirus crisis is over?

When the dust settles, buyers will want to invest in businesses over which they have control, not in an anonymous stock market over which they have no control and in which they are subject to the "slings and arrows of outrageous fortune."

Especially valuable will be companies in these categories: manufacturing, research & development, high technology, healthcare-related of all kinds, business-to-business services, business development & executive training, and the like. Buyers will be looking for many favorable attributes, but particularly a high return on investment ("ROI"), solid management and financial structure, independence from and non-reliance on the individual principal owner, a diverse customer base, growing sales, predictable and growing profitability, a unique selling proposition ("USP"), and a well-established and recognizable market presence.

To be that company that attracts the attention of the post-Covid19 buyer requires concerted structured strategic planning now to enhance or develop those essential attributes. There are good programs for such an in-depth analysis available from trusted advisors such as CPAs, business coaches, and business brokers.

  Helpful Resources To Assist In Selling And Buying California Businesses
William F. Ziprick, Attorney: Legal Services For Buyers And Sellers

Through creative problem solving, attention to detail, accessibility, & understanding that unnecessary delay is often a deal killer, I work closely with my clients and other professionals to consistently achieve a high rate of closings. Office: 909-255-8353, Cell: 509-951-7230.

Helen Yoo, New Century Escrow - Escrow Services In Southern California

Helen Yoo at New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Diane Boudreau-Tschetter: Escrow & Bulk Sale Services In California

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Brad Steinberg, Business Broker: Laundromat Specialist

PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.

Elizabeth McGovern: Escrow Services - San Francisco Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

Shalonda Chappel: Escrow & Bulk Sale Services - Southern California

Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.

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