Business leaders across the globe are wondering about the coronavirus’ (COVID-19) impact on the economy and what a company can do to help its employees. Furthermore, if a business owner had plans to sell their company this year, what now? After years of investment in their company, no business owner wants to settle for less than the full value of his or her business.
Declines in consumer confidence and decreased sales threaten businesses across numerous industries. While the ultimate economic impact of COVID-19 remains unclear, most experts believe a global economic reset has likely already begun.
Most indicators point to a near-term economic slowdown, but experts and M&A professionals do not expect the negative impact of the outbreak on markets and deal activity to continue indefinitely.
Here are a few best practices you may be able to implement today to help preserve your business’s value for the long term and perhaps even position it to grow stronger during challenging economic times.
- Protect Existing Cash Flow: Amid economic uncertainty, protecting cash flow can be extremely challenging. Reducing overhead and improving efficiencies are surefire ways to preserve cash flow. Under-performing business units that are not central to the core operations of the business may have been tolerated during stronger economic conditions, but they can become riskier propositions during turbulent economic times. Culling those underperforming businesses preserve core value in the face of market declines. Establish a clear defensive moat in support of business units with strong profitability and focus on metrics that provide the best insight for their management in response to market conditions. Investors respond positively to companies that demonstrate early proactive navigation of the business in the face of adversity and economic downcycles. Additionally, as the economic cycle recovers, management decisions made today can generate future operating leverage to the benefit of shareholder value.
- Maximize Your People Asset: Buyers seek evidence that demonstrates the quality of leadership within a business. Successfully navigating economic turbulence is one of the most compelling ways for a business to illustrate the strength of its management to a potential buyer. While it may seem counterintuitive, periods of high unemployment provide opportunities to obtain talent that may not previously have been available for hire. Looking for ways to enhance the talent of your people may involve reshuffling existing management as well as evaluating processes for outside recruitment. For the broader base of employees, improving human capital may involve revisiting training policies and procedures that were deferred during periods of robust economic growth as well as evaluating general retention practices more broadly. While making the best use of your assets should always be the goal, it becomes imperative in turbulent times that you are receiving optimal value from every available resource.
- Perform Sell-Side Due Diligence: When assessing its interest in acquiring a company, any serious buyer will perform due diligence by thoroughly examining the company’s business model and value attributes. Before engaging in discussions with a buyer, it’s often useful to look in the mirror and assess your business from the perspective of a buyer. Be honest and identify those areas of particular strengths and weaknesses that are driving financial performance. Buyers typically focus on the earnings of a business, most commonly on the earnings before interest, taxes, depreciation and amortization (EBITDA). Identifying and reconciling performance trends and validating the quality of earnings will help reduce the likelihood of disappointing offers from buyers.
Interested in more tips on maximizing the value of your company? Flip through the SlideShare below:
Lastly, and perhaps most importantly, make the most of your current customer and client relationships. As a recent article in the Harvard Business Review points out: “When customers are separated from the work that’s being done behind the scenes to serve them, they appreciate the service less and then they value the service less.” Connect with them as often as possible and describe the steps you’re taking to mitigate risk. Give them clear and direct insights into the steps you’re taking to move forward on their behalf. In the face of a new economic reality, the importance of regularly connecting with your customers is more critical than ever.