For business owners wanting to sell and people wanting to buy a business, finding common ground when it comes to business value and fair sale price during the Covid-19 Pandemic is a complicated and challenging process.
All of a sudden, 2021 has thrown us a curveball with no previous playbook, and some businesses have been forced to ‘adapt or die’ when it comes to their business model and product/service offering. Many businesses have completely changed things up in order to survive.
As an example, Scaffolding companies such as the Adelaide firm ‘TBA’ have shifted focus entirely; previously creating large-scale pop-up stages and now creating a whole range of iso-related products such as desks and partitions and kitchen fitouts.
The pre-COVID methods of valuing a business affected in these times, needs re-thinking. Valuers used to assess financial performance, current markets, stock levels, goodwill and more to come to an educated conclusion on what the business in question was worth but primarily based on historical earnings. Now, mid-way through 2021 and amid the pandemic, past performance and current assets no longer determine whether a business can stay afloat, let alone prove profitable in the years to come (i.e. uncertainty is now high amongst many buyers)
So how can businesses be fairly valued in a COVID-era?
Many things must be considered when valuing a business in this volatile environment. Past performance, current stock levels and assets, goodwill and all of the past variables must still be assessed. However, is there a current demand for the product/service being provided by the business during this unpredictable time? Does the market even exist at present? These factors will need to be considered. Remember that a buyer is purchasing the future earnings of the business and the question is has this particular business been permanently affected or was the 2021 year a “one-off” blip?
Thus for many new deals we are finding that buyers and their advisors are suggesting the inclusion of an ‘earn-out agreement’ for part of the purchase price, so that the business can prove that the future earnings have not been impeded.
An "earn-out agreement" is essentially a legal promise, where a buyer pays less upfront for the business in question, noting that additional payments be made at specific dates in the future if business goals are met, usually with financial targets in mind.
This type of agreement can be tricky and somewhat complicated, as it isn’t a clear-cut handover of the business and the previous owner still has their finger in the pie, so to speak. The seller will want the business to continue performing well to collect the buyer’s additional earn-out payment(s), which can become a confusing management situation if the buyer and seller do not agree on key business decisions.
The most important thing to consider here is that all important factors be included in the agreement so there is less grey area and a clear separation of roles and responsibilities.
That being said, during a pandemic year, an earn-out agreement’ could be a necessary and beneficial tool when looking to sell your business.
E&OE
It’s no surprise that the coronavirus has impacted us all, in various ways. Whether you’re a business owner, an employee or someone looking for work, you’ve no doubt encountered many speed bumps so far this year, with potentially more to come.
The sad truth is that without our support, small Australian businesses won’t see the other side of this restriction period – with many small businesses having to close under the pandemic pressure. So, what can we do to lend a hand and keep the small businesses we know and love afloat? Here are some ideas of ways we can stimulate their earnings and keep their heads above water.
Buy a gift voucher;
If their products/services are something you can see yourself or a friend or family member utilising in the future, support them now by buying a gift voucher or two. The instant purchase may allow them to make rental payments or keep staff employed.
Write them a good review;
Google reviews are delayed during this time, but you are still able to write them. So show your favourite locals some love on Google and Facebook. Customers count on reviews to make decisions, so your positive review could help drive new customers their way.
Share their profiles on your social media accounts'
Whether you are an Instagram influencer or have 10 friends, think of the positive result of sharing your favourite local businesses with your social media circles.Post, tag, story and share. The more people that visit, the longer your local can survive!
Contact them and see what different products/services they may be offering'
Many businesses have adapted during this time, offering different services or products to stay in business and help their community. Some breweries have begun manufacturing hand sanitiser, cleaners may offer a discounted ‘covid clean’ for businesses, your favourite coffee shop may now deliver for an additional fee! Whatever it is, learn about the changes they’ve made and see if you can utilise them.
Utilise their services more often than normal'
Before covid-19, you may have decided that ‘eating out’ was a monthly treat. But if you are financially able, why not make it a fortnightly or weekly treat for the coming months. Those few extra visits could make all the difference to a small business.
Show Empathy where you are able'
Australia does not have a strong tipping culture, due to our minimum wage being substantially higher than countries such as the United States or United Kingdom. However, if your wallet allows, consider tipping those who are keeping a positive attitude during this unsettling time. It may not be much, but it could really help struggling businesses/employees.
Offer your expertise to lend a hand.
If you aren’t able to offer financial assistance, think of ways you can contribute with your skills. Marketing experience could help small businesses advertise their new line of products or services; bookkeepers could lend a hand with organising finances. Why not offer to help in any way you can? There’s nothing stronger than the Australian spirit when the going gets tough.
E&OE
