Explain the past

Experiencing a downturn in business activity whilst selling a business can cause anxiety for both buyers and sellers who have relied on past performance on determining the company’s worth. It is more than possible, however, to successfully sell your business after a decline in profits; however there are several steps you should take to improve the outcome of the sale.

It is essential that buyers understand the reasons for why your business has experienced a downturn so that they can determine how to improve future earnings for the business. Buyers are more understanding if the fall in profit is caused by one off sales or expenses in the past, which may misrepresent the overall performance of the company. Similarly, if your business activity is seasonal, you should provide buyers with longer term information about the business’ financial performance. As a seller, it is important to explain why these downturns are temporary, for example, how changes to staffing arrangements or agreements with suppliers will return performance to historical expectations.

Provide a path forward

Sellers can benefit in the transaction process by providing a path forward to buyers where they can foresee the business returning to past performance. If you have experienced interruptions in your projects, you can explain to buyers that they can benefit in the future as these projects are completed. You can explain this process to a buyer by showing them a forecast of the next period where your business improves after implementing changes or adjusting for one-off events.

Managing your expectations in negotiations

A downturn in your business’ performance, even if it is only temporary, will have a material impact on how buyers perceive the value of your business. If you receive a lower offer for your business because of this, you could offer deferred payment terms where the buyer pays less than the whole amount upfront and repays the balance depending on the performance of the business. An example of this is an earn-out, where the buyer can repay the balance once certain financial targets are attained. Although this method can assure buyers and reach a deal faster, it is a riskier way to receive payment for your business.

Next Steps

Quinn M&A has an expert team of business sales advisors that can help you. Contact Quinn M&A on 02 9223 9166 or email info@quinnma.com.au to find our nearest office.