The coronavirus pandemic has made conditions extremely challenging for many business owners, with many unable to trade at capacity and the looming recession already taking a toll.

For those business owners who are also getting divorced in the current environment, the situation is further compounded. Business valuations will be seriously affected, altering the outcome of family law proceedings. With conditions deteriorating quickly, it's important to seek advice from the experts to ensure your strategy is in line with the fast-changing environment. 

An unprecedented crisis 

Steven Groves, Director at Quinn M&A, believes that the current environment is completely unprecedented. 

“During the GFC many businesses had declines in their trading performances. Some businesses shut down. And some people were laid off. However, in the current market, we’ve seen businesses simply close overnight. It's been quite dramatic, quite quick. And in that sense, in my view this is quite different from the GFC.” 

There is no knowing how family law Courts will approach these unprecedented conditions. Talk to your lawyer to make sure you are taking advantage of opportunities and avoiding the risks. 

Is now the right time to sell?

Many business owners may be contemplating selling their business. With trading affected and no clear way out in sight, exiting may seem like their only option. Groves suggests that for the most part, this isn’t a good idea. 

“I’ve been instructing my clients that it's best for them to consider holding off on a sale where possible. Given the current market, it's an opportune time to simply spend some time working on the business and getting it prepared for sale down the track.”

“If clients are in a position where they can do that, my view is they should do that. Given that there are so few buyers in the market, given the current economic circumstances, it just makes sense to delay selling.”

For those that are adamant on selling, they need to be prepared for a protracted sale timeline. 

“Instead of selling a business in what might be normally a 3-5 month timeframe, my view is that the timelines will extend out well over six months at the moment.”

Groves argues that values will likely be affected and there will be buyers looking for serious discounts. 

“Economic times like we’re in at the moment will bring out bargain hunters who are looking to steal businesses for cheap prices and remarkably competitive terms.” 

However, there are some industries where there will be opportunities to sell good quality businesses to larger established businesses with strong balance sheets. Like everything though, there are no guarantees in these unprecedented times. 

“The best thing to do is to sit tight, in my opinion, and wait for more stable periods of time to come when a business sale can be completed.”

How do the current conditions impact valuation orders? 

For business owners who are required to get the business valued for the purpose of family law proceedings, they can expect the value to be much less than it was even a month ago. 

Groves is seeing less buyers in the market and values declining. 

“The biggest issue is the illiquidity of businesses and the lack of marketability of businesses. Business values, in my view, are discounted by somewhere around the realm of 10 to 40 percent. But that’s certainly not the case for every business and every industry. There are some businesses that are still trading well.”

For those businesses that own real property, this won't necessarily add significant value.  

“With respect to business interests that are associated with more passive style assets, things like real property, certainly those interests will decline if the real property values decline. Anecdotally, what I’m hearing in the market is that there is some softening in the value of real property and less buyers.”

Lower business valuations can create circumstances for business owners where they may in fact get a better outcome from family law proceedings. Talk to your lawyer and business valuer about what to expect and how best to approach things. 

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