Most business owners have an end game in mind – a plan for an exit strategy at some stage in the future when they will be able to sell their business and realise the fruits of their labour.
But the COVID-19 downturn means the landscape has shifted when it comes to selling your business. It’s important for vendors to understand what’s changed when putting their enterprise on the block.
Zoran Sarabaca is the principal of business brokers Xcllusive. He says two factors are at play when it comes to selling a business at the moment: profits and return on investment (ROI), which is the ratio of profits over the cost of the investment.
“These elements haven’t changed through the pandemic. What’s changed is the business environment. Some businesses have been positively affected and others have experienced a decline. Buyers are looking to see if this is a temporary or permanent change and are pricing that into their due diligence when assessing whether to buy a business.”
“Selling a business takes time and forethought to achieve the best result”
There are a number of sectors in which it’s possible to sell a business for a premium at the moment, says Sarabaca.
“There’s demand from buyers for businesses in the IT industry, especially if the firm has technology that can assist people working remotely. Buyers are also keen for businesses that have not being negatively affected by COVID. We are seeing heightened demand for manufacturing businesses plus distribution and service companies are also selling well and will continue to do so in the future.
“Let’s say a business sells a computer to a customer. Three years later, there’s a fault in the computer and it short circuits and starts a fire that destroys the customer’s home. The policy that usually responds is the policy that was in place when the fire started.
“If the company goes out of business in the time between selling the computer and the fire and it has no insurance in place, it won’t often be covered by the insurance policy that was in place at the time the product was sold.”
If you sell a range of products but discontinue one, it’s also essential to ensure insurance remains in place for the discontinued product.
White also notes it’s important to understand that under the terms of a product liability policy, your work is your product. “So you, if you’re a tradesman and you build a bathroom renovation, the bathroom renovation is your product. If something in the bathroom fails once you’ve finished the work – let’s say a plumber incorrectly installs a pipe that breaks and floods the house – the claim arising out of this situation will be a product liability claim, not a public liability claim.
”If you’re importing products from overseas, also ensure the product meets Australian standards to reduce the potential for a product liability claim down the track.
Talk to your Steadfast broker to ensure you have the right insurance in place so that in the event of a claim, you should be properly covered.
Important note – the information provided here is general advice only and has been prepared without taking in account your objectives, financial situation or needs. Steadfast Group Ltd (ABN 98 073 659 677, AFSL 254928)