EP 42: Frequently Asked Questions for May 1, 2020

Ed Mysogland  0:01  
Please welcome please welcome welcome. This is another episode of the defenders of business value podcast podcast where we talk about what makes a business valuable learn the tips and tactics to increase your company's value that only veteran dealmakers know. And now here's your host it miso clamp. Welcome to frequently asked question Friday, I'm your host Ed my sick land. I help business owners make sense of the value in their company so that one day they can sell it when they want, how they want and to whom they want. Each week, I answer three questions about business value or selling companies that come in from the website or social media. This is a little bit shorter of an episode, but hopefully, it will be helpful in your journey to making a saleable company. Alright, so let's get to it. Our first question today is about Coronavirus. We've been getting a number of questions, the same question and what does this do to my business? And what does value look like? And what is the saleability look like? So you've heard my my thoughts about it. So I thought I would share some thoughts about some of the firm's some of the people that I follow. So this first group that I'm going to share is called permanent equity. They can be found at permanent equity.com P er ma n e n t equity.com. So they did a survey of 336 business owners from 43 Different states about how the virus and the economic shutdown has changed their business. So I'm gonna go ahead and summarize some of these things that they found. And I'll also link their findings to the show notes. So first revenue impacts. It reads, many small businesses are already feeling a significant impact on revenue, with a third of the respondents reporting a 25% drop in revenue versus the same period of 2019. This job has little to do with company size and everything to do with industry. At or nearly 50% of the respondents in food and beverage, entertainment and retail reported a year over year drop of nearly 50%. Okay, so workforce changes. 37% of those surveys have already made changes to their workforce, either by cutting hours or compensation enacting furloughs, or laying off employees. These changes tend to be either highly concentrated or very widespread, with 54% of companies making alterations impacting 10 or less percent of the workforce and 24% of the changes impacting 80% of the workforce. So employers have taken dramatic steps to keep employees out of the office before COVID 65% of businesses reported having 10% or less employees working remote now 50% of businesses have 80% of their employees working remote, but the shift appears to be temporary, temporary, with 70% of businesses not planning on expanding remote work after the crisis has passed. So what's interesting about that is like financial services industry like ours, you know, we're this virtual selling will be part of the playbook. And I think it will make us more efficient as far as communicating that we can do zoom meetings and have preliminary exploratory meetings as opposed to dragging a business owner into our office or us coming to them. So I think I think we're going to see a lot more the virtual and remote workforce. To continue construction obviously, needing to bring back employees back into productive again, bring back to be productive again. But the same resistance to remote work is seen based on company size as well for company generating less than 10 million in revenue 36% are expanding their remote workforce postcrisis versus 19% of companies above 10 million in revenue. Okay, so moving into finance, the financial pinch is felt evident in how companies are handling their accounts payable with with nearly 50% of respondents having altered their policies already. Further 14% report delayed payments outside of the terms of their agreements are not paying altogether. Of those responding to the question 68% are delaying their plans for capital expenditures with 42% either Delaine indefinitely or canceling completely. Interestingly 50% of respondents have made no cuts to their marketing budget but another 24% report, slashing their marketing spend by 50% or more. Next is timing and sheltering. Most business owners are optimistic but shelter in place orders lifting quickly supported by recent news from state level decision makers 82%, or business plant 82% are making business plans based on sheltering in the last two months, or less and less than 6% sheltering have an impact beyond summer. So the majority of those surveyed also are confident in their company's ability to survive 57% of of business could survive sheltering that lasted through 2020 or longer, nearly 70% would be able to restart their business in the event that it had to shut down. Both these metrics are highly driven by industry and and are detailed in their report, as an example, transportation and entertainment among the hardest hit industries yet, over 80% of the respondents of these industries believe that they will be able to restart should they have to. Alright, government aid. 88% of respondents believe that government aid will help businesses survive, and it shows nearly 80% of those surveyed have applied for for some sort of aid since the start of COVID-19 shutdown of those who have applied only 36% had actually received the aid at the time of this survey, which I believe it was. This passed earlier this week, which is the week of September or September of April 21. All right, moving on to optimism. Despite some bleak numbers, the respondents indicate entrepreneurial spirit is is driven by owner operators to build their businesses in the first place. And it appears to be alive and well 77% of respondents agreed with the statement that their business will emerge from this pandemic stronger than before. Okay, so first off, I'd like to thank permanent equity. For the survey. I think it's, you know, any any kind of data that we have to help business owners understand what's going on in other parts of the country, as well as how their brethren, entrepreneurs, are faring. So again, thanks to permit equity, I will put a link in the show notes. And we'll, we'll leave it at that. So we'll move on to the next question. So the next question is, what are the questions you need to ask buyers? When selling a business? So the first one is, number one? Why why why would you be interested in buying my business? What makes you think that my business is something number one that you can run? Number two, that you can do better than me? And number three, how? How do you perceive that this works for you and your family? The way it has for mine? The next thing I would consider is what's going to be your evaluation process? You know, so how does how does that look for you? Are you going to? Do you have a set process? What does the due diligence look like? How deep are you going to dive into my books and records? Do you need to talk to my customers? Do you need to talk to my vendors? And to the extent you know, and that's where the the brokerage comes down? I mean, because there's a there's a process and a procedure that that we go through in order to minimize breaches of confidentiality. So but if you're if you're doing this with a by yourself, and you're working with a with a buyer, I mean, that's what you need to do is establish what are the ground rules? And what are you looking at doing and when and how. The third thing that's always important is financing. You know, everybody wants to be a business owner. No one really wants to write the check to become one. And that's, you know, you have to understand where work capital is because when you buy a company, you're writing two checks, one you're writing a the buyer is writing a check to buy the business and the second thing is that the buyer has to read Second check for working capital. So I mean, there's

you have to understand where the buyer is getting their their funds, or if they have access to it. And, and I'll just give you a quick hint that if someone says, Look, I have an investor, you know, the next statement out of your mouth is bring your investor and then we have something to talk about. Because the the investors time is far more important than the check that that investor is going to write. So, yeah, so from a financing standpoint, that's what you'll you'll want to do is have a clear understanding of where they're going to get their capital. Because if if they come into the acquisition undercapitalized, you run the risk of getting getting it back or, or they have the risk of defaulting. And then lastly, and this is probably for your own edification is you've built the company and you've worked hard and developed it and spent many nights thinking about it, probably. And so the next question is, what are you going to do with my company? What do you see about this investment that that perhaps you're going to grow? Grow it into? What paths are you going to take? And how? And how, how does it look? Five years from now? So I think you know, just for your own edification, you, you want to ask that question. All right. So the last question is a rough one is how do I know if I should close my business? Man? That is, that's a rough one. So I guess, let me see if I can help. So the first thing I guess you need to do is you need to evaluate, I think you need to look at your business objectively. And recognize that, you know, it's probably going to be a fairly bumpy road. Getting back to where we were. So, I mean, you need to remember that, you know, in the 1929, stock market crash, and then in 2000, I mean, there were there were three years that saw, you know, various false rallies before reaching the bottom. And, you know, so you got, you have to consider that, that, that, can you withstand some more downturn? I think the next thing is probably to evaluate, you know, is this the same business? That it that it was when you got into it? I mean, do you still like it? It's a it's a different, it's a different world, and it may be a different business. And so, if you're not enjoying it, you know, now may be a decent time to, to think about how you're going to exit? Or if you need to close it. And then, you know, again, I think it also depends on how, how have you changed, you know, your risk tolerance now that, that you're not? In May, perhaps you're not working, or you're thinking about closing the business? I mean, the risk tolerance of being a small business owner is is an entirely different animal than working for somebody. So you may not be the same person you were so. So from where I'm sitting, I think those are the three things you need to consider, you know, our do an objective review of the businesses, it's still the same. Can you withstand some more bumpiness? And lastly, are you the same person? So I hope that helps. Well, that about wraps it up. But before you go, would you like to receive a weekly newsletter of curated articles that I've stumbled upon or am writing about regarding business value and making a company saleable? Well, if so, go to defenders business value.com and sign up for the newsletter. Now, if you have a question that you would like answered, go to, again, the website defenders of business value.com, and push the appropriate button, or you can email me at ed at defenders of business value.com Or you can reach me at Twitter at Ed miso. Thank you so much for spending time with me. If I can ever be of help to you in any way, please don't hesitate to reach out. Have a good weekend, and I'll see you next week. This was another episode of the defenders of business value podcast for more episodes packed with strategies to increase the value of your business visit defenders and business value.com For shownotes transcripts and free tools to start you on your journey. Subscribe now so you don't miss any future episodes.