As we write this, The United Auto Workers continue to strike against at least three automobile manufacturing plants. This move not only affects the big auto manufacturers, but also hundreds of companies associated with the industry.
Auto and parts dealerships, component manufacturers, shipping companies, even businesses like gas stations, restaurants, and other small operations are dependent on the workforce that supports the plants. Striking workers get a stipend (about $500 a week while not working), but that means reductions in family spending as well, multiplying the economic effects downstream in the cities where plants are located.
Strikes aren’t the only once-in-a-generation event that can impact a company. Natural disasters like fires, storms, and earthquakes can close a business for an extended period or interrupt supply chains for months. We all watched as a global pandemic shut down whole industries and disrupted world commerce for the better part of a year.
These disasters are unpredictable and out of a company’s control, and the effect on profit can be devastating, assuming the business survives the event. Between loss of business and possible expenses for repairs, rebuilding, or changing strategies, it’s almost certain that the affected year’s financials will look dismal. Many business owners are forced to rethink their timeline for selling their company after a big hit to the bottom line.
A professional business broker can be a valuable partner in making decisions about whether and when to sell your business. We can help you understand how one year’s dip in profitability and EBIDTA will affect the overall value of your business on the market and how to position that to potential buyers.
For many owners, the best course of action is to wait for a normal year or two to counteract the financials of the disaster year. Showing a return to profitability in the years after a disaster will reassure buyers and lenders that the event was indeed a one-time hit and not the beginning of a long decline.
Even with a clear understanding of what happened and why (the pandemic is an excellent example), a buyer will be unwilling to pay top dollar for a company whose profitability has been impacted. Lenders may very well not be willing to finance the deal at full value, so the buyer and seller may have to consider other options such as investing more cash upfront or including seller financing.
Another way a broker can be helpful after a disaster is in fending off buyers who are looking to cash in on distressed businesses. We don’t see it often, but occasionally we’ve encountered predatory investors who want to take advantage of an owner’s difficult position. We refuse to do business with them, helping our clients resist the temptation of unloading the business during a very stressful period in their lives.
If your business has been affected by a disaster, whether man-made or an act of God, consulting with a business intermediary might be the best move you can make. We can help you craft a strategy for selling your company or making decisions about your timeline for exiting the business.
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