Without a doubt, virtually every industry has experienced significant shifts and changes throughout the COVID-19 pandemic.
While the economy is slowly recovering from its impact, it seems like a risky time to buy a business. However, some industries, such as engineering, manufacturing, and e-commerce, have seen an increase in demand during the pandemic, presenting future opportunities for entrepreneurs.
John Hatt, Managing Director and experienced business broker at Business Partnership, offers his advice on the benefits of buying an existing business and why now is a good time to buy for profit. profits in the post-pandemic world.
Benefits of buying an existing business
Buying an existing business can give you the same independence as starting one, but it will also come with significant benefits. If you choose the right line of business, it will come with an existing customer base, a strong brand, and steady or growing income, as well as a willingness to stay with the company. This is especially important in the current weather conditions as you will gain insight into how your business is adapting during the pandemic and whether it has the financial resilience to withstand the latter. COVID or not.
Forecasts are more predictable when the business has been running for a while. You’ll have a better idea of your future income and cash flow, which can make planning and applying for funding a lot easier. You will be able to build on what the previous owner did. While you can rebrand and change your business, you’ll need to consider whether this will alienate existing customers or harm the brand you’ve already purchased.
What needs to be considered before buying?
It is extremely important for any potential buyer to do a thorough due diligence before purchasing any business. This process should be started as soon as possible after your offer has been accepted and before the exchange of a contract or the completion of a purchase. It will also establish the business’s assets and liabilities and assess its commercial potential, as well as allowing you to assess both the current and future impact of the pandemic on the business.
However, there are some areas that will need more attention given the current climate. Including:
• Employment issues: Review of steps sellers have taken to release their obligations to protect the health and safety of their workforce in relation to the pandemic.
• Supply chain: Assess whether suppliers in the supply chain can reach their agreements and take note of whether the seller has accommodated any disruptions in the supply chain. are not.
• Financial assistance: Collect details about merchant participation in any financial programs or other government measures to support businesses during the pandemic and circumstances related assistance is (or may become) reimbursable.
• Insurance: Reflects the extent to which the seller is insured against losses incurred as a result of business slowdowns or shutdowns due to the COVID-19 outbreak and any similar events that may occur in the future. future.
• Physical contracts: Assess whether the seller can still fulfill its physical contracts and what are the consequences of non-performance.
The COVID-19 pandemic is a huge challenge for many sectors, and continued uncertainty can be particularly damaging for new businesses. Investing in an existing business with a steady income may be a better idea at this point, but you need to ensure that any major impacts are reflected in the valuation of the business and/or reflected in the warranties and indemnification in the sales contract. This will essentially give the buyer the right to claim a partial refund of the purchase price if any of the foregoing issues arise.
Deciding which business to buy will depend on your hopes for the business, whether any are suitable for sale, and which option appeals to you more. If you want to run a business without struggling through the tough startup years, it’s best to buy an existing business.
One thing buyers often overlook is whether or not they should have their business appraised by an independent broker, and the answer is always YES! Take advantage of any advice (it may cost you money but it can also be well spent) that is available… always buy with your head, not your heart!
