In life we tend to view things with an emotional outlook rather than from a logical perspective. Of course, this is not what we tell ourselves. But in reality, all we are doing is trying to justify our emotional decisions.
Which brings me to the question: Is now a good time to be doing business acquisitions while we are still in the middle of a pandemic? Or should we just hunker down and try to ride things out?
The COVID-19 pandemic is a terrible event that is disrupting many lives and businesses. However, the crisis has also created a lot of opportunities for many business sellers and buyers. Here is what I have been shouting from the mountaintop even before the pandemic: Today is the best time in the world to be a buyer of businesses. Why? Because money will never be this cheap again and as accessible. And with money being so cheap, there has never been a better time to be a seller, too, because cheap money helps increase the value of companies.
Whether you’re a buyer or a seller, now is prime time because both parties win.
Two examples of industries where crisis has created opportunity are hotels and restaurants. Both industries have been severely impacted by COVID-19. If you are the owner of one or several hotels, there is a good chance you may go broke, and the future probably doesn’t look too bright either.
But one owner’s end to their business is another’s beginning. I know of a large hotel owner who is accumulating as much cash as they can to acquire as many hotels as they can in markets where they currently have hotels. In some cases the cash will be used to acquire some competitors who may hold some great locations for the building of a new hotel later. In other cases, the cash will be used to simply take out a competitor and gain market share. And why not? Money is cheap and the hotel concept is still good; it is just going through a down cycle.
The same thing is going on in the restaurant industry. It has been said that 20% of restaurants in business prior to the pandemic are closed for good. But there are competitors and new startups going in behind these 20% of restaurants that went out of business. They’re renting their old location and either expanding a concept they already had or opening a new restaurant concept.
By studying history, we know the most successful businesses have been the ones that look toward the horizon. They take the long view. They invest for generations, not for just five to 10 years.
To be an effective buyer, you need to plan to do the following:
- Be prepared to kiss a lot of frogs. Meaning you may have to look at 10, 20, or 30 or more opportunities to find the right one for you.
- Acquire lots of information. It’s critical to get as much information as you can about the opportunity you are thinking about acquiring. You want lots of data. For starters, you will want past profit and loss statements, balance sheets, and asset inventories. You want to learn as much about the business as possible in writing.
- Consider owner financing. Cash is cheap, but owner financing, whether it is whole or partial, is always good to have. By owing the seller some money, I have a partner who is vested in my success and will be there to answer my questions. If it is an all-cash deal, then expect to get a discount.
- Do your due diligence. And then do it again. Remember, nobody knows more about the business that is being sold than the person who has owned it for years and now is trying to sell it to you.
If I was going to be a seller and not planning on doing a fire sale, I would do the following:
- Prepare meticulously. I would prepare the business for sale the same way one prepares their house for sale. I would make sure everything is in working order and I would get all my financial books and records in order, so it would be easy for the buyer to understand what they are buying.
- Be specific. Have a list of assets both physical and intellectual as to what is being sold. The last thing you want is a misunderstanding of what is being sold.
- Get a valuation. Find out what the business is worth. You’ll definitely want to have a valuation done ahead of time. Most people know what their cars and homes are worth, but for business owners the biggest financial asset they may own is their business, and they often don’t have a clue as to what it is worth.
The pandemic is bad, but the world will keep turning and people are going to keep buying things. If you are in business and are serious about staying in business, the last thing you want to do is look back and see the opportunities you missed as a buyer. Or, if you’re a seller, you don’t want the regret of the piles of money that you left on the table.