What You Should Know About Buying a Business During COVID-19

Posted On: / By: Brian Knoderer
Buying A Business

Coronavirus has halted many prospective business buyers’ goals, but truthfully, it doesn’t have to. While the pandemic has introduced significant challenges in many industries, it’s presented unique opportunities in others. Of course, you’re better positioned to become an entrepreneur if you intend on buying a business during COVID-19 rather than launching a startup. With existing infrastructure, trained staff, and processes in place, the former is the much less risky choice during an uncertain time.

Don’t let the virus hold you back in your long-term plans. Instead, learn how to adapt and roll with the situation ahead – as you’ll have to do regularly as a business owner. Interest rates through the SBA and other lenders are historically low, so let’s talk about what considerations you should make before buying a business in the current environment.

Should You Buy a Business During the COVID Pandemic?

Initially, there was little activity on both sides of the sale. But, as we’re semi-stabilizing in our “new normal,” we’re seeing more current owners go to market, with the pandemic being a final push towards exiting or retiring for those already contemplating their future. There are plenty of great opportunities coming available that will lend themselves to the smart and patient buyer – not the rash, “get-rich-quick” investor.

1. Be Prepared to Pay a Premium for Thriving Businesses

Expect to settle on a higher asking price for businesses that succeeded through (or are well-positioned to succeed after) the pandemic. Given the constantly-fluctuating state of the market, it’s no surprise that companies that performed consistently well are more coveted right now. Of course, every potential buyer wants to reach the best deal they can, but you may not want to shy away from a business opportunity that costs more than you were expecting. Right now, predictability is in high demand. If you’re not sure if a business is worth the premium, consider getting a third-party opinion from a business broker.

2. Consider Success in the Long-Term

Building off our last point, your business’ long-term success is based on a multitude of factors. One of the biggest mistakes you can make is investing in an opportunity that only promises short-term success. While we may never fully return to our old normal, some products and services won’t be nearly as relevant in a few years as they are today.

You’ll also need to look beyond the scope of your business. Will your customers be able to continue buying through you now and in the long term? Are your suppliers going to be around? Uncertainty surrounds our future, so the very best small businesses for sale right now will check off on these questions.

3. Re-evaluate Your Initial Assessments

prospective business buyer meeting with business brokerIf your business search began before or during the early stages of COVID-19, you might need to reassess some of the important data and figures you once had in mind. As we mentioned, for-sale businesses that are thriving right now will cost you a premium, so you may have to pay more than what you initially expected through a valuation. If you’re interested in an opportunity that needs to rebuild or reinvent its business model, you may need to procure more working capital than you planned for. Businesses fluctuate with the rest of the market, and since the market is constantly changing, you must stay on top of current data.

4. Unique Opportunities

We’re seeing some very unique opportunities emerge within the business buying world – ones that past buyers haven’t had access to. For starters, millions of people lost their jobs due to layoffs, furloughs, company closures, etc. The unemployment rate was as high as 14.7% at the start of the coronavirus pandemic. Although this figure has decreased significantly, there is still a large pool of qualified candidates to tap into who are seeking new opportunities. Another window to consider is the location of your business. Given recent business closures, there are many more vacant storefronts than what is typically available. Many small business owners are undergoing asset sales, and since real estate isn’t always included, buyers have the liberty of choosing where to house their operations. Ecommerce has really taken off, so you should also consider the opportunity to generate more cash flow there.

5. Address Challenges to Employee and Customer Safety

While no industry has gone unaffected, it’s much easier to operate (and succeed) in some than it is in others. Regulation for employee and customer safety is high in most parts of the country, so before buying into an existing business, make sure it can overcome these challenges. Ask yourself if your business can easily mandate mask-wearing, social distancing, and other necessary regulations. Are you able to implement a remote work arrangement, and do you know how to do so? Can your business withstand a temporary closure if the COVID-19 crisis takes yet another downturn and we have to enter a lockdown again? Keeping everyone around you safe and healthy is of utmost concern, so you’ll need to consider how to achieve that best.

Today’s buyers must be diligent. They also need the right level of patience. While you don’t want to leap into just any promising opportunity, you also don’t want to sit on the sidelines forever and miss out on this unique time to enter the market. Get insight into buying a business during COVID-19 through one of our brokerage teams. We know business transactions up-and-down and can advise you on buying within your industry and location. Contact your local Sunbelt Business Brokers office to learn more.

Brian Knoderer is the President of Sunbelt Business Brokers. He has over 20 years of experience as a business owner and managing business transactions. As a seasoned intermediary, Brian has successfully represented companies in a broad range of industries helping business owners achieve their desired exit strategy or growth initiative.

Brian is also co-owner of Sunbelt Indiana and Managing Director of MMI Capital Partners, a franchisor focused investment banking firm.

Previously Brian was involved in several entrepreneurial ventures as well as having held corporate roles in Franchise Development for Prime Hospitality and Choice Hotels.

Brian is a graduate of Ball State University with a degree in Management Information Systems and earned his MBA from Butler University. He has received the Certified Merger & Acquisition Advisor (CM&AA) designation, holds both the Series 7 – General Security License and the Series 63 – Uniform Securities Licenses, and is a licensed Real Estate Broker. He has been affiliated with several organizations including the Entrepreneur Organization, a Member of the International Business Brokers Association, Venture Club, and a Board Member of The Entrepreneur Institute.

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