So you want to purchase a business during a pandemic

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So, you want to purchase a business during a pandemic

Unfortunately, you are not the only one! A recent survey indicates, new business listings are down, average price is up which has resulted in a supply & demand imbalance. 

There appear to be several key themes for this;

Assuming you are still keen to purchase a business, there are 2 main sources of businesses for sale.

1. Off market – you or somebody else knows someone who is selling a business.

2. On market – a business is being advertised to the wider market often by a business broker. 

In reality, the purchase of a business is a stepped process from initial idea and scoping through to the final settlement and takeover. This can take a lengthy period, particularly if you are purchasing a franchise. At any given point in the process, always be prepared to walk away from the purchase if it doesn’t meet your criteria. Never believe that you are in “to deep” or past the point of no return – it may have cost you some money to get to this point but don’t throw good money after bad. 

Be very aware of the difference between a business decision and an emotional decision.

With this in mind below are several Key Principles to consider when purchasing a business:

There are many more factors to consider but this should give a broad outline.

Covid-19 has created some very interesting positions for businesses, some are positive while some have been negative. This is very much dependent on industry & location. We are very conscious of the impact Covid-19 has and that it has created some fantastic trading results, these need to be allowed for when considering the long-term position and value of the business. 

A final thought - Profitability is King & Cash is Queen. You need to ensure that the business is generating enough net surplus to achieve what you want. If the potential business is not generating these surpluses or the potential is not very evident, don’t buy it.

If you are still contemplating purchasing a business the team at Malloch McClean has experience in working with clients purchasing businesses and we can provide specialist advice on business valuations. Need help? Get in touch. 

Written by Ian Harrington
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