If you would have asked me to write an article about this topic six months ago, I would have suggested that perhaps you had consumed too many adult beverages. But now that we have lived, albeit reluctantly, with COVID-19 for several months, we have some experiences that we can share. First and foremost, good, profitable, and growing businesses are still in demand. And because there are fewer of them, they command significant attention, and in several cases multiple offers. Below are some suggestions for completing a transaction in the current environment. Several of them also apply under normal business conditions.
How to Buy a Business During Hard Times
Write Down Your Objectives and Requirements
Knowing what you want and need in advance enables you to act fast and stay on course. Certain categories, such as manufacturing, are performing better than others, such as the hospitality industry.
Stay Within the Rails
Loan underwriters are less likely to fund a transaction where the buyer does not have some direct or applicable experience.
Know What You Can Afford and What Is in Your Comfort Zone
This includes knowing the various types of financing available. You may recall that in last month’s article, I addressed some of the incentives, including six months of principle and interest forgiveness, available to business acquirers under the CARES ACT, if a business was purchased and funded with an SBA loan prior to September 27, 2020. Due to the heavy volume of interest in this incentive, unless you already were fairly well along with a transaction, it is unlikely that you would be able to qualify for this program. However, there are other incentives being discussed in the next round of Federal stimulus funding.
Identify Your Team of Advisors
Most good M&A advisors, including accountants, attorneys, and lenders are fully engaged in transactions and it is important to have a good team of experts to help you through the process of enhanced due diligence and loan underwriting.
Look for Businesses with Accurate and Timely Financial Data
With the changing economic environment, you should know how a business is performing and adapting to the economy. This is particularly important for the loan process, as underwriters are even more forward-looking in this economy.
As in most fluctuating markets, there are opportunities available for those with the ability and willingness to seize the field.
(originally published in the August 2020 eNewsletter)