The year that was, 2020, had a profound impact on us all,from both a personal and business perspective. Irish SMEs went into shockinitially but by and large adapted well to the rapidly changing landscape thatCovid-19 forced on them.
Prior to and during this time, I and my colleagues had beenworking with a number of business owners on both the buy and sell side of businessacquisitions and disposals.
Making the most of a crisis
A key theme that we focused on with SME these businessowners was keeping their eyes on the business, to maintain its value, eventhough they were faced with the challenges brought about by Covid-19. Thisstrategy paid off in the end. Businesses that had been strong pre-Covid emergedfighting fit (with the aid of the various government and other supports andmeasures that had been put in place) when the initial sudden impacts first feltin March 2020 started to subside and businesses adapted to new ways ofoperating and interacting with all their stakeholders, both internally andexternally.
Covid-19 forced businesses to implement “businesstransformation” strategies that they had put on the long finger. New ways ofoperating within physical environments and the greater use and reliance ontechnology have allowed businesses operate in leaner more efficient ways whichin turn made them more attractive for acquisition and enhanced the price that apurchaser was willing to pay.
Another strategic focus that we press upon our clients whoare thinking of selling their business is the earlier you prepare for the sale,the smoother the sales process will be, which in turn will yield the bestpossible outcome for business owners. Having the preparatory work completed andby this, I mean having all internal due diligence on the business finalised i.e.,legal, financial, tax, operational and commercial, meant that whiletransactions got paused due to Covid-19, the work that had been completed wasstill relevant and more importantly available, when stalled transactionsre-commenced in the latter part of 2020.
By having all this work completed, business owners and theirstaff were able to focus 100% of their attention and dedication to navigatingthe business though the unforeseen consequences the pandemic caused to theirbusinesses, which in turn allowed them concentrate, in some cases on clawingback and for others preserving the value in their business. For some thepandemic even brought about additional opportunities for growth in new productsand services which in turn made their business even more attractive than it waspre-Covid.
The above process also brings to the surface matters whichwhile not material to the overall transaction, may distract both buyers andsellers from progressing with it in a timely manner. These matters can beaddressed by the seller prior to going to market and therefore are not around tomake noise during the sales process. Matters which may arise that are of a morematerial nature can likewise be addressed and solutions formulated andimplemented to resolve them before looking for a buyer.
Role of external advisors
The role of external advisors can often be seen as a non-value-addedcost to a business. In my experience the opposite is in fact the case. Veryoften professional advisors such as solicitors, accountants and tax advisors areinvolved in advising and assisting businesses with their obligations to meetstatutory or regulatory requirements. The professional fees associated withproviding these services are viewed as “non value add” for the business and anecessity as opposed to services they seek out. The costs associated withprofessional fees, both prior to and during a sales process should be viewed asan investment in the business. As professionals we are equipped to tellbusiness owners what they need to hear as opposed to what they want to hear. Weare there to ensure that owners and more importantly that their business, is in the best possible position for sale and also to support and navigate them through the turbulence they will experience on the sales journey. As we don’t have the “emotional” attachment to and engagement with the business that most family business owners have and experience, we are better placed to process the highs and lows experienced during the sales process in a different way.
For most, selling a business that they either founded ortook over from other family members, is a once in a lifetime event. Like anyrelationship and the professional one between businesses owners and theiradvisor is no different, the bedrock is trust. You want to work with someone thatyou can get on with and trust. You want to be able to bounce all your “stupid”questions off them. You want them to be available to you. Therefore, beforeselecting your advisors, you need be certain that they are the right fit foryou and your business. Selecting the right advisory team can take time but it’sa time investment well worth making.
People and Talent
Another outcome from Covid which had been brewing prior toit is the “war for talent”. All businesses, regardless if producing goods orproviding services, reply on people. The last 18 months has brought into sharpfocus the wellbeing of any businesses key resource, its people. Businesses thathave adapted to and responded positively to the needs of their staff and reapedthe rewards. Those that have been slower to or more reluctant to change arelosing out. A key item that if not, then should be on your strategic agenda is“People and Culture”. Those that are ahead of the game will retain and attractthe best of talent. Its not all about the salary, which while very important intoday’s economy where the cost of living continues to rise and housing lessaffordable, a business needs to have a lot of other “perks” and more importantly flexibility around how, when and where their staff work. For some, based on what they do, this will be a bigger challenge than for others, but a challenge for all non the less.
What lies ahead for SMEs
As we move through 2021 and beyond the landscape is whichSMEs operate will continue to evolve, with highs and lows, and I anticipatethat there will be a greater number of transactions taking place. These arelikely to take the form of both outright acquisitions but I also anticipatethat there will be consolidation of SME businesses in many sectors particularlyfor smaller companies to enable them position themselves to better compete withlarger players. Therefore, you need to be ready which feeds back to my earlierpoint on the importance of early planning.
Sinead McNamara is a solicitor and Partner at FitzGeraldLegal & Advisory LLP
This article appeared in a book recently published and co-authored by Jim Power, Economist and Cormac Fitzgerald, Accountant titled "Smart tips for SMEs - understanding the SME environment in an Irish context"