Dealing with Black Swan Events
It’s all well and good telling you how you can be more successful when planning to sell your business during good times. But what happens when the world is hit by a black swan event? How can you mitigate the effects of such an event, and how can you retain as much value in your business as possible? We share some advice on that below.
Remember that cash is king
Many business owners we meet take pride in having no bank debts, having paid down any start-up loans years ago and often having built up significant cash reserves in the company. Often this cash is earmarked for extraction for the shareholders benefit on exit. However, during a black swan event, that cash can also provide a war chest to enable the company to trade through difficult times.
Whatever your company’s cash reserves, our view is that business owners should take full advantage of any Government support that is available.
You should also consider R&D Tax credits, particularly if you are redeveloping or re-orientating your products and services to adapt to the new market conditions. You should consider R&D Tax credits anyway, but especially during a black swan event where the tax relief may be particularly welcome.
Finally, in our experience, it’s cash rich companies that will be offered more favourable deals when the black swan event is over and you come to sell your business.
Review your products and services
When will things get back to normal? Will life and business return to how it was before? What will be the new normal? These are legitimate and proper questions to ask yourself during a black swan event.
At the start of such an event, it is difficult to tell what the impact will be on the future. But a slowdown in business can give you an opportunity to reflect on what works well, what could be improved, what your market really needs and what other sectors your company can provide for.
Gaps in the market may open up that your company’s capabilities can fill. For example, during the Coronavirus crisis, 3D printing businesses were able to demonstrate their speed and agility in providing much needed masks and PPE for healthcare workers in amazingly quick order.
Whilst this has often been done on a pro-bono basis, it has opened up a new market for many of these companies and there may be many other products to be designed and produced to address a myriad of challenges faced by the healthcare sector.
Identify and look after your key staff
In good times, developing a management team so day to day operations and client relationships are no longer dependent on you is fundamental to achieving a successful sale. Assuming you were well on your way to achieving this before the black swan event, keeping these key players in your business will not only see you manage and adapt through the downturn, they will be invaluable to you when it comes to the process of courting buyers for your company further down the line.
Identify those with key skills at all levels in your organisation and use the downturn in activity to nurture and train them. This will put your company in pole position to get back into action when the recovery comes.
It could be worth accessing any Government support that may help your business keep a hold of these key staff if the black swan event has a major financial impact on your business.
Continue but adapt your marketing activities
For most businesses, ploughing on with the same marketing messages as you were a month or so ago before the crisis will likely not work, and in many cases could be counterproductive and insensitive.
As always, marketing messages need to be credible and valuable to your audience and target market so that your company maintains awareness of its products and services, and continues to develop credibility and authority in its brand.
Yes, the market requirement for your product or service may have reduced, whether temporarily or for the long term, and yes, cutting expenditure and conserving cash in a downturn is very important, but so too is maintaining the visibility of your company.
When a black swan comes along, there will be areas in which you can save costs and keep your powder dry for when the recovery comes – but you must also carry on promoting your company profile in your community and across your target audience and client base.
Plan for the recovery
Contrary to intuition, many insolvency practitioners report that they are most busy when the economy starts to recover from a downturn – not when a recession starts. Having battened down the hatches and ridden the storm, business owners are often caught off guard when the recovery comes. More work starts to come in, but cash reserves to buy in materials and labour are low, clients may not pay for 60 days or more, and things build to a crunch point.
To avoid this paradox, you need to plan ahead. Monitor your income and expenses on a weekly basis so you can get finance and funding lines in place ahead of time and hit the ground running when things pick up again.
And finally - Keep objective records of the impact of the black swan event
Unless there is a temporary closedown of a company in which case the impact is pretty clear, keep records of which customers have ceased trading, the order volume reductions from specific customers, the cost saving measures implemented through furloughing staff, grants received and overhead reductions.
All of this will help when it comes to selling your company in the future and will demonstrate to future buyers that the black swan event was the reason for a drop in sales and income. If there is a rapid rebound in activity in your sector, business valuations should rebound in quick order too.
We completely understand that we’ve just thrown a lot of information your way. But we wanted to make sure we covered everything, so you’re aware of what you need to know when it comes to selling your business.
And, of course, we’re always here in case you have questions, so please get in touch and grill us if you’d like - we’d love to hear from you and we’d be happy to help further. So please give us a call on 020 8090 9380 or, if you prefer, send an email to [email protected].
This article originally appeared as part of the Ultimate Guide on www.Converge.today in August 2020. Other articles from the guide can be found via the links below: