Many small businesses have closed, severely reduced output, or are slowly reopening during the COVID-19 pandemic. So why would a business buyer consider moving forward with a transaction in such a dismal environment?
This is why:
Business Owners are Motivated to Sell
A large percentage of small business owners are Baby Boomers that have survived 9/11 and the Great Recession. These owners are near retirement, yet they have been on the fence about selling and have had a difficult time walking away from the steady profits they have received from the recent strong economy. Now, COVID-19 is changing their outlook and many are ready to enjoy their older years without the stress of owning and managing a business. A motivated business owner offers you, the buyer, a seller ready to get the deal done.
It Takes Time to Buy a Business
It normally takes 6-12 months for a business to sell. As a buyer, it will probably take you the same amount of time to conduct research, allow time for due diligence, and agree to the closing documents. Start looking now so that you can close this fall or the beginning of 2021.
More Sellers Creates a Buyer’s Market
Due to COVID-19 and the abundance of businesses soon to be for sale, what we have been calling a seller’s market will become a buyer’s market.
As this crisis will be seen as an economic anomaly, should businesses quickly return to pre-pandemic profits, it should not impact the value. The seller should be able to maintain its value based on the past three to five years and ignore the COVID-19 downturn. That being said, returning to pre-pandemic profits quickly may be difficult for many businesses. Combined with a buyer’s market, that may allow you the ability to negotiate a better price and terms with a company that is less successful in achieving prior profitability.
The Recession You’ve Worried About is Here
In the past couple of years, I have heard many buyers wonder if they should buy a business with the oncoming recession that many have said is right around the corner.
Well, folks, the recession is here. Recessions normally linger for 6-18 months. By taking the time to buy a solid business now, you should have it up and running by the time this recession is in the rear-view mirror.
Not only that, if you are buying a foundationally-sound business, you may find the recession will have eliminated a competitor or two.
You Will Be Buying a Lean and Mean Machine
Many businesses have been using this time to do a health check and cut unnecessary expenses. By buying now, you will likely be taking over a business that has slimmed down and is ready for growth. With a strong sales and marketing plan, you should be able to increase profits while you slowly reintroduce relevant expenses.
SBA Loans are Extremely Attractive Right Now
Should you and your new business qualify for an SBA loan, included in the COVID-19 CARES Act is additional business acquisition stimulus money. If you buy a business with a 7A SBA loan before September 27, 2020, your first 6 payments will be paid by the SBA! Talk to an SBA lender to get full details on the substantial savings.
If you have thought about owning a business, or if you are currently an owner and want to strategically add a synergistic partner, now is the time to start the buying process. With multiple motivated sellers in a low-interest-rate buyer’s market and an economy that should slowly recover, the timing could not be better!
This article was written by Sam Thompson, CBI & M&AMI. Sam is the president and owner of Transitions In Business, a Minnesota-based M&A firm that specializes in selling healthcare, business to business, transportation, manufacturing, distribution, and IT companies in the lower middle market. Prior to becoming an intermediary, Sam was a successful CEO and business owner for 29 years before selling his $16 million business. Transitions In Business is a proud member of Cornerstone International Alliance.