Pacific Mercantile Bancorp : Planning Your Exit Strategy Post COVID

While the world works closer towards overcoming the COVID-19 pandemic, business owners may be considering their own future as the social and economic impact of the pandemic continues to unfold. Things are looking up in many industries, causing business owners to revisit their previous plans of selling their companies. And if you haven't thought about it before, now may be a good time to do just that.

If you're thinking about selling, even if that exit plan isn't for several months or even years down the road, you'll quickly find that the world of sales is a bit different. COVID-19 has influenced numerous changes, many of which impact owners who are planning their exit.

Is now the right time to sell a business? What's going to change when you make the decision to sell? Let's talk about timing and what you can expect when it comes to selling now.

Why Is Now the Time to Sell Your Company (Or Even Buy One)?

If you are planning a transaction like this, knowing the business climate is critical. There are a few key reasons why now may be the ideal time to make your move:

• Baby Boomers are thinking about retirement. With Baby Boomers making up 60% of the 15 million privately held companies in the country, which is about 9 million, that's a large number of businesses potentially on the market. These business owners have gone through one of the hardest years. Now they're looking for a way out while things are improving.
• There are numerous opportunities available right now to buy a business - and there are plenty of financial tools like Small Business Administration loans available to support the purchase. Even if you're selling, that's good news for those looking for a buyer.
• It's likely there's a boom coming. Many experts believe that, as the pandemic comes to an end and more people become vaccinated against it, there's likely to be a large economic resurgence. Some claim it will be a significant opportunity for those in the right position.

The Economy Is Recovering, but How Has COVID Changed Things?

All of these look like promising reasons to plan an exit strategy. Yet, one of the most important factors companies must keep in mind is that the landscape is different. Here are a few reasons why.

The Current Seller's Market Has Dampened
One of the first and most important factors to keep in mind is the shift away from the seller's market that's been present for private business sales for a long while. There's still a strong market in place now for private business sales and transactions are moving forward but at a slower pace. The pandemic created pressure on buyers, putting a level of concerns over risk in their minds. Buyers not willing to take risks, slowed the demand for businesses. Still, there's concern about the value of businesses as well as the pressure of the unknown due to the pandemic. Many companies will still report profitable growth in the next year. Yet, the strong seller's market that was present just a few years ago, isn't as impactful.

Due Diligence Will Examine COVID-19 Continuity
Another likely shift will include more due diligence specifically to include questions related to the pandemic and the company's business continuity through that period. Does the company have a continuity plan and has it been tested? How has the need for employees to work on a remote basis been handled? What type of technology upgrades are still necessary to enable this? What type of cash flow restrictions occurred when the company shuttered doors due to the virus? A slew of questions about how businesses handled these difficult questions are likely to be asked.

Buyers Want to Know There's a Corporate Succession Plan in Place
It is likely to be a big selling point when it comes to post-COVID-19 transactions. A well-developed succession plan that also works to groom future company leaders will be a big part of the work organizations must perform. Management teams impact the viability of companies. Buyers need to know there's a process in place for developing business managers should existing professionals leave.

Predicting the Unknown: Data Is Still King

When it comes to selling a business at any time, buyers need information. The pandemic has not changed that but has made it more important to have in-depth information available including how those values may change over time. For example, calculating enterprise value now is different due to the weight of the pandemic and the uncertainly of a prolonged recession.

Organizations should see the value of selling their business now as the economy recovers. However, heading into this process with more data and insight may be critical to getting the best value for your business.

That's where Horizon Analytics® can come into play. This financial modeling and planning tool enables companies to get a better idea of where they stand and where they are heading over the course of the next few years. It can prove to be incredibly valuable when trying to sell a business - in fact doing the work of selling your company for you in many ways.

With the use of Horizon Analytics, it is possible to gather a wide range of data to present to would-be buyers. These tools can address many of the biggest concerns buyers have including:

• Valuation including exit strategy and succession planning
• Profitable growth (and any gaps in it
• Cash flow for the business
• Business planning and forecasting

It's the best way to get information that can help you make a selling (or even a buying) decision in today's climate.

Is Now the Time to Sell?
As a business owner, you know the work you've put into your business over the years. If your company is like many others, 2020 was nothing short of frustrating and overwhelming. As the country begins to pull out of a year of uncertainty, it's clear that taking aggressive action now to be ready to sell could be the right move. Even if you're not there yet, make sure to have a blueprint in place with the help of Horizon Analytics to help you to make the right decision in the coming months and years. It could prove to be exactly what you need to know if you should sell now.

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