Business Sale Deal Structure Change as Result of COVID Impact

Business Sale Deal Structure Change as Result of COVID Impact

This year has brought on many changes. We have had to learn to adjust to our new normal and the uncertainty that anything will ever go back to how it was before this year. With 2021 fast approaching and a vaccine still in the works, this “new normal” might be sticking around a little longer. Thankfully, we have had time to see what works, what does not, and how to prepare accordingly. When it comes to business sales, there are some structural changes, but nothing our experienced business brokers can’t handle. 

Deal Structure: What Has Changed?

We believe the below will be the most important aspects of any business sale moving forward. 

·         Cash is King

In this specific climate, cash flow has become increasingly important. The uncertainty of non-liquid assets or investments means buyers are more interested in seeing profits in a much more tangible light. 

·         Seller Financing

Removing the middle-man, i.e., a financial institution, and financing the business yourself is a great incentive for buyers during this season. Lower interest rates, more control over the transition of management, and making more from the sale overtime means both parties benefit from this option. 

·         Earn-outs

By definition, an earn-out is greatly beneficial to you as a seller. Why? Well, an earn-out is when you, as the seller, receive additional future payments dependent on the performance of the business. Earn-outs can be tricky and the devil is in the details, make sure you work with your broker to be sure the structure of the plan is advantageous to you. 

·         Third-Party Financing

In this situation, the financier is not the seller. This could be an investor or a financial institution. Currently, it’s more difficult than ever to acquire financing so keeping an open mind is important. 

·         Management Transition Agreements

Like the name suggests, this agreement provides both the seller and the buyer with some peace of mind during the transition of management/ownership. During this specific season, this means a seller can advise on best practices and learnings to ensure the business continues to remain profitable in these uncertain times. 

·         Key Employee Agreements

Are your employees loyal to you and only you? Or, are you afraid your employees will lose job security under new management? It benefits you, the buyer, and your staff to include employee agreements within the sale. A business cannot run without its staff, especially those who are familiar with day-to-day operations, sales, and customer service. By including the guarantee of certain staff in the sale, you are much more likely to find an enthusiastic buyer.

Overall, has this year put a damper on your plans to sell and retire or explore new entrepreneurial opportunities? Don’t let it. There is no reason to keep putting your plans on hold. Contact your local business broker at Transworld Houston and start preparing your business for a successful sale.