Preparing Your Graphics Business for Sale During the COVID-19 Era
Six steps toward selling your shop.
During the rockin’ good times of 2018, 2019, and January through February 2020, the thought of selling your business probably rarely entered your mind. Sure, you knew you needed an exit strategy sooner or later. But your shop was busy and growing. Life was good.
The abrupt COVID-19 shutdowns in mid-March jolted everyone. The NCAA March Madness basketball tournament was cancelled. Big tradeshows were postponed, including those events for which your customers needed new exhibit graphics and collateral. And most stores, restaurants, schools, and “non-essential” businesses and travel were shut down. You were scared, and so were your customers, suppliers, employees, and family members.
Surviving the crisis from March through July required a series of tough decisions just to stay afloat. Then, in August, September, and October, a new wave of uncertainties arose about a second round of COVID-19 restrictions, government relief packages, and the availability of safe vaccines. All these conditions were complicated by questions about changes in our country’s leadership and the potential tax impacts. Some ready-to-retire owners of graphic companies now regret turning down opportunities and legitimate sell-side offers they received in 2019. They chose to hold out for a higher price in 2020.
When graphic company owners call me for advice, I caution them that simply leaving the business is never a good solution. The “I quit” walk-away plan will haunt your reputation for years. Depending on how your business is set up, simply walking away from your business could ruin your personal finances and ability to get any type of financing in the future. Here is what I advise business owners:
Choose your course of action: Buy, sell, or grow. If selling your business is your preferred path, you probably will need to grow it for a few years in order to get a reasonable deal. In today’s risky investing climate, buyers are seeking larger companies that are less affected by economic turmoil. If bankers have already started calling to see how your business is going, it may be too late. You should have an exit strategy in mind before creditors start serious discussions about your sales, revenues, and profits over the next few months
Graphics companies that make good deals stay ahead of the game – both in profit levels and expansion into growth markets.
Understand that attracting any buyer takes time. It won’t be a three to six-month process, because the sellers’ market of 2019 has become a buyers’ market in 2020. With so much volatility and many financially distressed companies, most buyers simply want customer lists or access to the growing and profitable relationships, knowledge, and experience of your talented workforce.
A lot of used equipment is being sold through fire sales, auctions, bank workouts, word-of-mouth, or inventory sales. And skilled, furloughed workers are eager to escape non-compete clauses so they can look for brighter futures elsewhere.
Realistically, it might take at least three to five years from 2021 for the post-COVID-19 economy to stabilize. Analysts are still struggling to figure out which COVID-19 trends were temporary and which ones have permanently altered our economy. When a new sense of normalcy does return, all businesses are likely to be much more digital and automated, with a reduced need for skilled labor. Online ordering of smaller quantities of both business and consumer products will be routine.
Get an objective valuation of your business. Hire a professional to explain how much he thinks your business is worth and what it will take to grow it over the next 36 months. Before buyers will even consider making an offer they will expect an objective and reliable business appraisal and predictions supporting your growth strategy.
Regarding commercial real estate, your 50,000 -square-foot manufacturing facility in a high-tax Northeast state might not sell for as much as it would have in 2019. Many of your competitors and workforces are expanding businesses in Florida, Arizona, or Texas to take advantage of the lower cost-of living, warmer weather, and favorable state tax incentives.
Use the independent valuation to identify areas of your business that must be improved. Understand your numbers and what drivers you will need to grow to remain competitive and sustainable. How much investment in resources will you need to be sustainable? Do you have the risk tolerance, the energy, the health, the money, the niche growth markets, and the skilled talent to really grow over the next five years?
Articulate a long-term vision for your company. Think and act like a start-up again. Sketch out a roadmap that takes into account some of the COVID-19 changes that have affected how people work, learn, play, and order products. Then, take actions to achieve that vision.
Private-equity firms with the financial resources to buy businesses have specific objectives for growth. They are less interested in how fast your shop grew in 2019, and more interested in these two things: (1) if your business has the potential to more than double its revenues and EBITDA within five years; and (2) the ability to execute their successful investment exit plans within five to seven years.
The long-term vision for your company should include a management or family succession plan. Potential buyers like knowing that talented operational personnel are trained to succeed you after you transition the business.
Boost your company’s reputation, brand awareness, and sales efforts. Improve your online presence and customer experience, digital marketing, and social media capabilities to build awareness and revenues in niche markets. Invest in your target markets by understanding the growth prospects, competition, future technology, and skilled talent.
If your company pivoted to new markets during COVID-19, what steps were most effective? What could you have done better? If you have adopted artificial intelligence and automated workflows to manage day-to-day production, document and publicize how the technology reduces your operating costs.
Selling a business today is more strategic, costly, and time-consuming than it was when you started or joined your business. Because of ongoing changes in economic conditions, regulations, professional services expertise, and impact on tax policies, the mergers and acquisition (M&A) process is complex and professionally regulated. No short cuts – integrity matters from concept to completion.
If you feel discouraged or overwhelmed, call me at 561-543-2323. Having sold printing and converting businesses that I founded and grew, I know the process of selling your company is an emotional roller coaster. Our team will give you real-world advice about all possible exit options. If you still envision selling to a third party, we can help develop a roadmap to meet your objectives, connect with potential buyers, and overcome challenges related to people, strategy, execution, and cash. We want you to be fully prepared for the selling opportunities of the future.
Rock LaManna is the Deal Flow Guy. He helps qualified buyers and investors find businesses ready for sale or transition. Visit TheDealFlowGuy.com to obtain a customized, reliable VBS (The Value Builder System) business valuation and expand your understanding of how to prepare your business to appeal to today’s buyers and investors. On LaMannaConsultingGroup.com, you will find expert insights on how to grow your business, prepare for a sale, and make a smooth transition to the next phase of your life.