The likely impact of Covid-19 (Coronavirus) on your business
Wales and West Business Brokers have been involved in selling over 1,000 businesses including before the financial crisis hit in 2008, which has given us some insight into the likely scenario with exiting the Coronavirus ( Covid-19) pandemic and it’s possible effect on the value of your business.
In 2008,it was as if someone disconnected the phone line. In the end, it took nearly three years before the economy sluggishly started to move forward, and for businesses to start to recover.
The UK entered into a period of austerity. The austerity measures were imposed to eliminate budget deficits that ballooned to unsustainable levels in the aftermath of the financial crisis. This lasted for over ten years, and then, just as we were starting to come out of it, Coronavirus struck.
The good news is that we do not envisage the impact of the Coronavirus to have such a dramatic or prolonged impact on all businesses that survive this time, although some will recover far quicker than others. The main reason why we believe the impact will be less than that of the financial crisis in 2008 is the government furlough scheme, which means many companies will keep “ticking over” with many picking up the slack they endured during the lockdown.
No one knows for certain the impact that Covid-19 will have on the value of your business, as no one in living memory, has had to endure a pandemic on this scale, but we can take an educated guess. The good news is that most buyers are ignoring what has happened during the pandemic, in the main, in terms of trying to determine the value of a business .
Regardless of what sector you are in, unless it is the supply of food to the general public or medical supply related, the chances are your business may have ground to a complete halt or at least been severely impacted. Having said that,all is not doom and gloom.
Because there is a known reason, and historical proof of previous performance for companies operating for at least three years, the effect of Coronavirus (Covid-19) can be somewhat mitigated, and most potential buyers will take this into consideration when looking to buy a business.
It doesn’t matter to Coronavirus (Covid-19) unfortunately, whether you were profitable or solvent before the pandemic started. In fact, after the 2008 financial crash, it was the more profitable companies that were hit the most as their overheads, such as labour and rental costs, were higher. The businesses with lower overheads are likely to stand a better chance of surviving.
The question is, how long will it take you to get back to where you were before the pandemic started when the lock down is over? The following may give you some indication to help you understand the implications of Coronavirus (Covid-19) on your sector and the way you operate.
"I was thinking of selling my business before the Coronavirus (Covid-19) pandemic hit. Should I still be thinking of selling it?"
The answer, in short, is probably yes. We are still getting serious enquiries from potential buyers on businesses we were engaged to sell before, and we envisage these sales completing once the lock down is over.
Here are some actual scenarios of people that we were in discussion which may help you decide. The first thing to say, though, is that with a good track record of profitability, people will take this into consideration, and we do have ways of showing the impact that Coronavirus (Covid-19) will have had on the business.
Example 1
A company that supplied the hospitality sector with products, and chose to put off selling
The owner was looking to build the business up over the next two years to increase its value and then sell.
Perceived impact: -This business will be severely impacted due to pubs and restaurants being closed down and having probably losing at least three months trade. It is likely that social distancing will continue up to a point even after pubs and restaurants open up again, and therefore the number of customers pubs will be allowed to serve, reduced.
Example 2
A high-end telephony company
The owner just couldn’t really decide on when to take the business to market and still has not proceeded a year after initial contact.
Perceived impact: - The damage to this company is likely to be significant as the company's clients are likely to put off any significant telephony upgrades in order to weather the storm of the Coronavirus (Covid-19)
Example 3
A frozen food company supplying frozen goods to the hospitality sector
Whilst this business is in the food sector, they do not supply food to the supermarkets, and therefore, as such, they have temporarily closed down.
Perceived impact: -Loss of trade during the period that the hospitality sector is in lock down. Had they have had a contract with a supermarket, the impact on their business would have been significantly reduced.
Example 4
A specialist Tax advisory company that chose to sell before Pandemic hit
We have received a substantial number of enquiries on this business, and we are likely to agree the sales contract before the lock down ends with a view to completion shortly afterwards.
Perceived impact; - minimal
Example 5
The sale of a pub
Probably the most surprising of all, we have just completed the sale of a pub at the price agreed before lock down. The buyers are realistic enough that the current situation is temporary, and were therefore more than happy to proceed.
Perceived impact: -None
In reality, every business is different, and as illustrated above, the impact of Coronavirus (Covid-19) even on businesses in the same sector can be significantly different.
These are just a few scenarios of the impact of an unforeseen event on a few businesses we are dealing with.
Of course, once a vaccine is found, then most of these businesses will start to make a recovery.
"What impact will the Coronavirus have had on the value of my particular business and sector?"
The impact on every business and sector will be different. For a free personal confidential honest assessment of the potential damage, if any, inflicted on your business by the Coronavirus, and when to sell, or acquire, then please contact us in the strictest confidence.
The value of your business will probably be impacted by the Coronavirus. That is a reality. Some sectors will survive better than others. If the financial crisis is anything to go by, though, the sooner you take your business to market, the better as the period over which you have been making lower or no profit will be offset by the previous years, when hopefully you were making more.
Taking your business to market sooner also makes sense in terms of finding a buyer as people are likely to look to acquisition as a potential way of offsetting the downturn created by the Coronavirus within their existing business taking advantage of economies of scale. We are already starting to see this happen.