The implications of the Coronavirus pandemic are significant for us all, but for those who are planning to exit a business in a badly affected sector, such as travel, leisure, hospitality or entertainment, they could be particularly acute.
For most, the planned sale of your business could be part of a long term strategy, the proceeds of which were intended to provide you with a comfortable retirement. However, you may now find yourself having to put exit plans on hold and looking at ways to diversify the business to help speed up recovery. But it may not be all bad news. With crisis comes opportunity and now could be a good time to capitalise on previously unconsidered opportunities, so what are your options?
The UK Government has taken drastic steps to stem the economic impact of the pandemic by slashing the Bank of England base rate to 0.1% - meaning finance is cheap! Short-term rates will likely stay near zero for even longer and rates are unlikely to rise until the economy is close to normal again, which means now is a good time to lend money to diversify and expand your business.
While business valuations are likely to be depressed, now might be an opportunistic time to make an acquisition. Bolting on a business complementary to your own - perhaps with less reliance on the same sector or has different seasonality to yours - could strengthen and secure the business’ future. With interest rates at such historic lows, putting cash in the bank to work by investing in or buying a business can be a better way to generate a return - especially if sellers are willing to reduce their asking prices for an accelerated sale.
Under the CBILS (Coronavirus Business Interruption Loan Scheme), there’s the opportunity for companies to obtain Invoice Finance free for 12 months, plus, as a number of Asset Finance providers now have a CBILS accreditation, this means that if you are looking to purchase new plant and machinery, vehicles or equipment you can take advantage of the interest being paid by the government for the first 12 months. Given that a lot of these agreements have higher interest payments in the first 12 months, this can make the overall rate over the term of the facility very competitive. These schemes are due to end by 30th September so you need to move quickly.
That said, we would not advise rushing into taking on more debt or buying a business without having a clear strategy in place. Preparation, protection and good advice is absolutely key, proceeding without any could be potentially very damaging.
If your business takes on additional borrowing, it is always prudent to ensure it is properly protected. The Coronavirus pandemic has taught us that we shouldn’t take our health for granted, and you should always have plans in place to limit the negative impact that even the most unforeseen events can cause.
Whilst you may not get maximum value for your business right now, the flip side is that there are buyers out there. Throughout lockdown many people have had time to reflect and re-evaluate their priorities, and whilst an exit might never have been on the cards, the current climate potentially offers business owners a chance to sell out and realign their goals. Many are considering selling out because they don’t want to put their time, energy or resources into rebuilding their business through another recession. Of course, it will be challenging to sell businesses that have temporarily been shuttered during the pandemic, because valuations are based on historical financials, but we are seeing sales going through, specifically for hotels where a lot of the value lies in the balance sheet.
If your business has been struggling since the pandemic and you don’t have a strong desire to continue running it, you may be better off selling at the current valuation rather than putting more money into it. If you drain too much of your personal assets trying to save the business, it will be hard to move on with the next phase of your life.
Many owners who have saved enough for retirement end up delaying that day because they’ve tapped into their retirement savings to rescue a business that will take many years to come back if it does at all. Pensions can be extremely complicated and full of potential pitfalls, so speaking to a professional adviser who can help you avoid making an expensive mistake could be critical.
Wait and see is always an option, but we would strongly advise our clients against taking the ‘do nothing’ approach. One thing is certain, the pandemic has forced change - whether we like it or not! There isn’t a single person it won’t have impacted which means consumers will change their behaviours as a result. With it, businesses will also have to adjust; new ways of operating, creating efficiencies, flexing cost base wherever possible, and more forward planning. Those that take control and plan their strategy will almost certainly improve their chances of coming out the other side of the storm, whereas those who just go with the tide may find themselves tired and washed up without the resources to continue.
Whether you see the next 12 months as an opportunity to diversify and expand, batten down the hatches and ride out the storm or the catalyst to retire and try something else, we cannot understate the importance of seeking advice. For many in the Hospitality, Leisure and Tourism sector, a business is often far more than a way to earn money, it is a passion and a way of life. It can be difficult to make an objective decision when you’re so close to your lifetime’s work, and seeking professional advice may be the key to making the right decision that you won’t live to regret.