Buying a business during the COVID-19 pandemic
It is no secret that over the first quarter of this year, the South African economy has seen close to rock bottom, albeit with few rays of sunshine here and there – namely the decrease in our fuel price as well as our interest rates decreasing. How long this will last? I suppose that’s anyone’s guess at this stage due to our economy being reduced to Junk Status.
During these trying times it is forgivable to think that things may never recover and the world as you knew it is over and never coming back. I am here to say you’re wrong! With great hardship comes great opportunity. We will be back and better than ever.
What to look at when buying a business during the COVID-19 pandemic
It is crucial to focus on one major factor when looking at a business to buy – one must identify those that were doing well right up to the time of the recent downturn (if any) and those that can, with all things being brought back to normality, do well after this situation has passed.
However, one must look beyond the business itself. Even if all fundamentals show that the potential business should return to historical levels, a buyer must dig deeper. It is not the business itself; it is the tumbling impact that could be in place which you may not see at first. While the business may seem fine, what about its clients or customers – will they still be there? What about its suppliers – will they be around? If the company laid off staff, will they come back to work? Were any key employees retrenched, who will not be returning, and if they don’t return, will they be hard to replace?
Think about the competition. It is easy to 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 are certain in this time of uncertainty; The first thing we know is what we don’t know: we have no idea how long this crisis will last, what it will look like after, who will disappear, and who will thrive; 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. 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. Backtest to see how these sectors performed in past downturns. Get ready to pull the trigger. Be ready to jump on the right opportunity, but please, do not pounce until you are certain.
Take your time and let things start to settle down. 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.
If you have any questions or need some guidance with buying a business, I am always happy to help. Use the link below and go to the contact us page. Note that you would like your inquiry sent to me. I’ll reply promptly. Good luck to all during these trying times and stay safe!