Should I postpone buying a business until things settle down?
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This is what many prospective business purchasers are asking right now.
It makes sense to wait and see what happens right now, doesn't it? Caution is wise. When things are uncertain, the easiest thing to do is to do nothing. And that is often the wisest decision.
Many prospective business purchasers are asking themselves "Should I hold-off and wait?" Is that you?
Think about these points when considering what to do:
1. What are your reasons for wanting to buy a business? Have they changed?
2. What will I do while I wait?
3. Opportunities are here now, but will they still be here when things change?
4. Are you buying as a long-term investment, or for short term gain?
5. If we are heading into the unknown.. how can we add some "certainty" to the future trading of the business?
Obviously some businesses will grow through the Coronavirus isolation period, and some will be adversely affected. What types of businesses will be positively impacted? .. and which businesses will be hit hard?
Are you happier buying a business which is going to benefit from the Corona Virus impact? .. or are you attracted to the idea of picking up a business which has been de-valued, and which is likely to become more valuable when normality returns?
Thinking about these options is really an assessment of your appetite for risk and reward, Are you an entrepreneur?.. or are you an investor?
Right now, interest rates are low - and they are likely to stay that way for the foreseeable future.
Some tips for searching and buying a business in today's climate:
1. Even in poor economic times, plenty of businesses stay ahead of the game - and some even do better. By choosing a business in a field whose products or services are in demand no matter what the housing or job markets are doing, you will be making a smart decision.
Here are just a few areas worth considering:
Food - Everyone needs to eat, and this industry has wide-ranging opportunities that include everything from wholesale or retail groceries to fast food restaurants. Restaurants may not be operating right now, but people are still eating.
Home maintenance - This sector keeps trading no matter what. If your toilet is broken, or the fence is falling down - it needs to be fixed.
Debt collection or legal services - Whenever times get tough for consumers, it's usually a boom time for anyone looking to chase down past-due bills and help prepare for evictions and bankruptcies. The right opportunity can be very lucrative.
Healthcare - This is a wide-ranging sector that encompasses everything from selling first-aid kits to providing emergency care.
2. One of the truths of the Great Depression was the saying, "Cash is king." In a deflationary environment, the money you hold today will inevitably be worth more tomorrow. The ability to do a deal without having to rely on financing gives you tremendous leverage. Even if you don't have the entire purchase price in cash, the advantage of financing only a small percentage of the transaction is highly beneficial.
3. Assuming you come up with only a portion of the asking price, having the seller finance the balance allows you to enjoy a major benefit. Uncertain times usually cause credit markets to freeze up. Business sellers will usually offer lower interest rates and for a longer payback period.
4. When looking for a business to buy, you will often discover that the selling price is based on both tangible and intangible elements. Tangibles include such things as real estate, a long-term building lease with advantageous terms, equipment, inventory, and supplies. Intangibles include the customer base, brand names, trademarks, patents, and something called "goodwill" The savvy buyer will ask the business owner to provide a breakdown that assigns a specific price to every asset.
5. The successful entrepreneur will do a great deal of research before sitting down at the negotiating table with someone anxious to sell a small business. Look at the overall health of the industry, find similar businesses that changed hands recently, analyse why they sold at the price they did, and pore over the business's books with a fine-toothed comb. Better yet, have the experts do it - an accountant to review the profit-and-loss statements, a business broker to seek out comparable sales, and an attorney to examine the various existing lease agreements as well as the bill of sale. A well-prepared buyer is a successful buyer.
Eventually normality will return.
Be ready for the day when things return to normal.
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