To say that the pandemic has been a major event in the business world is a criminal understatement. A lack of federal support and a nation ravaged by the pandemic is providing a massive strain on thousands of businesses across the country.
The impact of the pandemic has had a disproportionate effect on small business, with nearly half reporting significant to severe impact. As a result, business owners have had to make tough decisions to simply stay afloat, and many have closed for good because of it. El Paso alone has seen well over a hundred businesses shutter due to the virus.
Business owners need options and solutions more than ever. In this month’s blog, we take a look at those options and the winter economic outlook.
An In-Depth Look At COVID & Small Business
So businesses are being hit hard, but how exactly have they been affected? Service industries have taken the brunt of the initial toll, with many experiencing a significant reduction in sales. Given the nature of the virus, it was inevitable that these businesses would face the most of the downturn, especially with little government assistance.
As the economy is completely connected, the fallout from service businesses created a ripple effect in closely related industries. Even sports had to change, with major sports leagues having to adjust their strategy to keep players healthy.
Given the Trump administration's gross lack of support for small businesses, that sector of the economy has been atrophying for months. Even now, the full consequences of this downturn are speculative; no one knows just how this will affect the global economy in the years to come.
Why the focus on small business? Well, the CARES Act provided bailout money mostly for large corporations. Those large corporations already had more capital and flexibility, and now are beginning to take over after closing small business. Hence the coronavirus being referred to as a market accelerant as well as a disruptor.
The Basics Of Business Exit Strategy
A business exit strategy, in basic terms, is simply a plan for the business owner to leave the business in some capacity. There are several ways that an owner can leave their business depending on their circumstances and goals.
One common type of exit is simply a business transfer, often to offspring primed to take over the family business. Typically, these types of business exits are planned well in advance unless the owner unexpectedly has to step away.
Another type of business exit is a business merger or sale of some sort. Over the years, many large companies have begun to corner the market with mergers and acquisitions.
Finally, the type of exit strategy being used by many businesses now are liquidation and bankruptcy. If your business doesn’t have many options, then your best bet may be these options. While it may feel final, even liquidation and bankruptcy could be part of a long-term strategy to revive your business later on.
Exit Strategy & COVID
Even prior to COVID, every business should have had at least a soft exit strategy. By having something in place well before needing it, you can best adjust to hardships.
Unfortunately, the pandemic has rushed the exit timeline for thousands of businesses. Business owners that didn’t expect to sell their business for several years are expecting to exit in months without help from the government.
As a result, thousands of business owners are having to have difficult conversations that they never expected to have. In the next section, we briefly discuss various strategies for exiting your business.
Selling Your Business
If your business isn’t doing very well, one avenue you could take is trying to get your business acquired by another business. In business, economies of scale refers to the cost savings associated with increased production levels. Basically, larger production operations can net more profit. By selling off your business to a larger one, it may be a win-win scenario for yourself and the buyer.
Depending on your type of business, there may or may not be a large market for your business. Before making any decisions, probe the market for your business to see if you could fetch a good deal from someone. Be aware that the market is volatile at the moment for some industries, so keep that in mind as you look for a potential buyer.
Liquidating your business means closing the business and selling off all of your assets. Liquidation is a final decision for your business, which is why bankruptcy is typically recommended before liquidation.
Once you’ve liquidated your assets, you’ll then use that money to pay off any debts or shareholders that need to be paid off. Remember, this could be a jarring move for yourself and those that depend on your business (employees and customers) so weigh all your options carefully.
Bankruptcy is considered a last resort for most businesses, and for good reason. Typically, bankruptcy is pursued when the business has an amount of debt that they are unable to pay through normal means. There are several types of bankruptcy, each with advantages and disadvantages.
If you are considering bankruptcy, it's important that you research the different types of bankruptcy and consult with an expert. This is a massive decision and any wrong decisions could spell permanent doom for your finances so be careful and thorough.
Let Herrera Group Help You Plan Ahead
No matter who you are, the pandemic has likely presented you with new and unique challenges. Herrera Group is El Paso's foremost wealth and financial management team and we are ready to help you navigate the unknowns. Contact us today to discuss your financial needs with a member of our team!