Is it Worthwhile to Buy a Business
As the COVID-19 pandemic (hopefully) winds down, the US economy is opening back up. No one is entirely sure what the world will look like in the wake of the coronavirus outbreak, but we do know that things will not be back to “normal” for a while. There are certain to be some permanent societal changes as well as changes in the way we do business.
The uncertainty that has been created by COVID-19 has caused a lot of aspiring entrepreneurs to wonder whether or not they should purchase a business now, or if they should wait a while to see what the fallout will be. There are strong arguments on either side of this debate, and the right answer will depend on several specific factors.
Reasons to Consider Purchasing a Business Now: For those who are ready to get into business right away, there may be some historic opportunities available coming out of COVID-19. Here are some of the reasons why now might be a good time to purchase a business:
- Low Interest Rates: On March 15, the Federal Reserve cut its prime lending rate to 0-0.25%, and the government has recently pumped several trillion dollars into the markets. This means there is plenty of capital out there to be borrowed, and borrowers can get some of the lowest interest rates that have ever been offered.
- Highly Favorable Loan Terms: The Small Business Administration (SBA) currently has several loan programs that are available for owners of existing businesses and business buyers. With one of their programs, the SBA will pay the first six months of principal, interest, and fees on behalf of the borrower, but this program is only available through September 27.
- Buyer’s Market in Many Industries: In some industries, especially those that have been particularly hard-hit by COVID-19, there are likely to be a lot of businesses up for sale in the coming weeks and months. And in some cases, you may be able to purchase a business based mostly or entirely on the value of their assets rather than prior net sales/cash flow. This could mean opportunities to buy a business for a lower price than you would usually have to pay.
- Economy Poised for a post COVID-19 Recovery: The economic future is uncertain, and there will definitely be high unemployment for at least the next few months. That said, the economy was very strong before the coronavirus pandemic hit us, and the government has pumped in trillion of dollars in stimulus funds to try to keep us afloat. If the economy gets fully reopened by the end of this year, we could be looking at a massive recovery in 2021 that new business owners will be able to benefit from.
Reasons to Wait a While before Getting into Business: Although there is great cause for optimism in the business world as we come out of the coronavirus pandemic, there is also some cause for concern. Here are a few reasons you might want to proceed more cautiously right now as you look at purchasing a business:
- Lack of Finances/Access to Financing: If you do not have sufficient funds and/or access to financing with reasonable terms, then you are probably better off waiting until you are in a better financial position. This is always the case as a general principle, but it is especially true when we are entering a period where we do not know exactly what permanent changes will take place in the business world.
- Uncertain Industry: Closely related to the previous point, you should proceed carefully if you are looking at businesses in an industry that has a questionable future. One prime example is retail. Large department stores and small retail shops were forced to close because of COVID-19, causing more shoppers to purchase these goods online. It remains to be seen whether or not shoppers will return to brick-and-mortar retail stores that were temporarily closed or if they will continue doing more of their shopping online.
- Low Risk Tolerance: Purchasing a business right now offers great upside potential if you get into the right business and industry, but in a world with great uncertainty comes great risk as well. If you have a fairly low risk tolerance and you prefer a more stable and predictable way to make a living, now may not be the best time to get into your own business.
Speak with an Experienced Business Broker to Discuss your Situation: Buying a business as we come out of COVID-19 could be a great decision, but there are some reasons to be cautious as well. If you are thinking about going into business, the best place to start is to contact a reputable business broker. Also known as business intermediaries, business brokers work closely with buyers to thoroughly assess their situation and find them the opportunity that best fits their passion, skills, and budget.