Coronavirus And Buying A Business: Opportunity Or Potential Disaster?

Wow, what a difference one month makes. My last blog on February 20th discussed the upcoming November elections and why you should not let that dissuade you from buying a business. Here we are five weeks later, and the entire world has changed. Nobody is worrying about the November 2020 elections (well maybe the selfish politicians are), and the common worry thanks to the Coronavirus pandemic has shifted to human survival.

While there may be people who have a general outlook on life that is as optimistic as mine; nobody is more so than I am, and especially as it relates to taking control over one’s destiny in the realm of entrepreneurship and buying a business.

I have been at it from every side for 30 years. I have always found a way for myself and my clients to focus on the finish line, to see opportunities in every situation, and to not let naysayers distract from the mission.

My stance has changed.

If you were thinking about buying a business prior to this pandemic, put on the brakes. If you are thinking about buying one as a result of it, do so slowly….very, very slowly. This is like nothing the business for sale marketplace has ever experienced.

Take It From Where It Comes

I saw an interview with a respected business broker this week. He was strongly suggesting there are wonderful opportunities and deals are still getting done despite us being in the absolute throes of this mess. He is completely full of it – the market has imploded and rightfully so.

He also identified certain sectors that are thriving now such as mitigation companies – of course they are, but that has no bearing on what their performance will be in the future. Sure, if you are buying a business for the next few months, a cleaning company that disinfects commercial buildings is a great choice, but what about afterwards?

There is a very good lesson here – intermediaries do not share your goals. They are biased. They can be self-serving. Their goal is to complete transactions – that is how they feed their families. The better ones understand the environment and client interests and adapt accordingly and focus on doing right by people. Suggesting otherwise is simply reckless and validates why the brokerage industry has such a lousy reputation. If you are a business broker, before you start pontificating or harassing me, you should know that I am a broker as well, so back off! Sell your nonsense somewhere else.

The best strategy for any prospective business buyer right now is to put on the brakes – no matter what anyone is telling you.

Company Performance – Before, During and After

Blood in the streets always brings opportunities. My partner and I are formulating a plan to take advantage of the market, AFTER things have settled down.

When looking at a business to buy, you want to identify those that were doing well right up to the time of the recent downturn and those that can, with all things being equal, do well after this situation has passed.

However, one must look beyond the business itself. Even if all fundamentals indicate that the potential business should return to prior levels, a buyer must dig deeper. It is not the business itself; it is the cascading impact that could be in place. While the business may seem fine, what about its customers? Will they still be there? What about its suppliers? Will they be around? If the company laid off staff, will they come back. Were any key employees let go, who will not be returning, and may be hard to replace?

Think about the competition. One may believe that if competitors have gone out of business it could be positive. Maybe yes…maybe no. For example, in a service business, what if the former employees of the competitor start up on their own and can take away business from the company you are pursuing, or they hire the business’ key personnel? These are but a few of the considerations.

Two Things We Know For Sure….

1.     The first thing we know is what we don’t know: we don’t know how long it will last, what it will look like after, who will disappear, and who will thrive;

2.    The second thing we know with absolute certainty is there will be a ton of opportunities. Companies will need capital and leadership. Cash is no longer just “king” – it is business God. Deal terms will get flexible.

What To Do Now?

Unemployment always leads to more business buyer interest. My publishing business has exploded in the last few weeks. That is great and appreciated, but that also really worries me.

Learning how to buy a business the right way is important. Knowing how to navigate in these uncertain times is crucial.

Learn, focus and network. Identify sectors that will return to normal. Back test to see how these sectors performed in past downturns. Get ready to pull the trigger. Be ready to jump on on the right opportunity, but please, do not pounce yet.

Take your time and let things start to settle down. Just do not wait forever. The opportunities will be there and the key is to have your homework done in advance to be able to identify what is truly an opportunity for the future.