4 Reasons an Economic Downturn is a Prime Opportunity to Buy a Business
It’s no secret that we are in challenging economic times.
The coronavirus pandemic has affected every aspect of life in the United States, from the health and welfare of people to the performance of businesses as states have issued stay-at-home orders to stop the spread of the virus.
As many businesses that were deemed “non-essential” were forced to either close or dramatically alter their normal operations, millions of people in this country have found themselves out of work. It took only two months for unemployment to reach historic levels, and the dire reality is accentuated even more by the fact that employment levels were strong immediately preceding the outbreak.
At the very least, most economists would say the country is in an economic downturn, but that the economy will bounce back relatively quickly as states re-open. Some, though, are predicting this will become a more drawn-out recession, with businesses taking much longer to return to previous levels.
Almost all businesses are going to face challenges in the months ahead. The day-to-day operations of some will change forever. Some businesses may never re-open. Some owners may decide to sell much earlier than they had initially planned.
No matter the cause, an economic downturn is often a great time to find value if you’re looking to buy an existing business. While you will certainly be entering a market that is rife with challenges and warning signs, there are plenty of advantages to making that investment during a downturn rather than thriving economic times.
Here are four of those reasons.
You Could Get a Discount
Businesses are valued in a number of different ways, but the performance of the company over the last few years, and the prospects for performance in the next few, are main points of interest.
In an economic downturn like this, it’s likely that the performance of many businesses is down considerably, as is the outlook for times ahead. Even if this performance drop can be directly attributable to a forced closing due to coronavirus, for example, it would also result in the outlook for future years being potentially bleak.
As a result, it’s possible you could get a discount on the purchase price of the business, and that discount could be quite substantial.
Funding is Cheaper
To combat the effects of the economic downturn, the Federal Reserve Bank has reduced interest rates to near-zero levels. This was done in an effort to convince people to borrow money for investments, or to help them survive the pandemic from a financial standpoint.
Access to funding is often very critical for people who are buying existing businesses, and now is a great time to borrow.
The extremely low interest rates could make the cost of the business much cheaper than it normally would, if you’re planning on financing even a portion of the purchase price. And even if you aren’t planning to do that, these low interest rates will give you access to cheap capital you could use to fund the advancement of your new business.
Competitors Are Vulnerable
One of the biggest threats to any business is competitors in the market. What an economic downturn does, in many instances, is level the playing field. This is especially true in the current downturn, which has affected just about every business in a single industry the same way.
For instance, all hair salons and barbershops were forced to close under states’ coronavirus-related restrictions. Therefore, all businesses in that sector experienced the same sudden disappearance of revenue, no matter where they previously stood in the “hierarchy.”
As a person buying an existing business, this actually gives you a significant advantage. While businesses with great brands and great followings will hold advantages over others as they are allowed to re-open, it won’t be as high of a climb for those businesses not considered the top in their industry.
Sometimes, the leaders in an industry are the ones that are hurt the most by extreme economic downturns, as it’s possible their bottom lines were hurt much more than others. This could make your potential competitors much more vulnerable than they’d normally be.
Consumers Will Want Change
It won’t be “business as usual” as states begin to re-open, and that should be just fine with you as you purchase an existing business. Consumers will definitely desire change as businesses are allowed to re-open.
In retail, consumers will want to see stores taking additional steps to sanitize and protect the spread of the virus through the use of masks, gloves and hand-washing station, for example. They’ll probably even be OK with different operating hours and limits on the number of people who can enter the store at the same time.
This will provide you with a great opportunity as a new owner to make your mark on the business you’re buying. These changes could be part of an effective marketing campaign that touts the new ownership as a positive rather than a potential negative.
It’ll be a “new day” for the entire country as we re-open, and you can lead that charge as the new owner of the business.
Talk to a Sunbelt South Florida broker today!
Sunbelt Business Brokers of West Palm Beach provides dedicated business brokerage services for all of your selling needs. Whether you are an established business owner nearing retirement and looking to sell, or an ambitious entrepreneur seeking your next investment opportunity, there is no reason to look beyond Sunbelt Business Brokers. Visit us at 800 Village Square Crossing, Suite 216 Palm Beach Gardens, FL 33410 or contact us at (561) 832-9222.