Should You Buy a Business Now? (Hint: The Answer Starts with a “Y”)
“In the midst of every crisis, lies great opportunity,” once said the famed physicist Albert Einstein. Even as the coronavirus pandemic wreaks havoc on national and local economies worldwide, savvy business owners understand that today, there are opportunities everywhere.
As media outlets feverishly chronicle the hardships of struggling business owners, laid-off workers, and evicted tenants, you may be, or become, convinced that it’s time to conserve your working capital and not take on additional risk. If your sales have remained stable, perhaps you’re doubling down on perks for existing customers, rather than chasing new ones. Maybe some recently laid off salespeople with strong books of business have reached out, but you’re holding off on calling them back for interviews. Or you’ve got a line on a new cheap supplier of a hard to find item, but you want to preserve cash flow and so have not pulled the trigger.
But now is not the time to sit on the sidelines. If you see opportunities like these, take advantage now while you can. Of course, risk is always a consideration, but taking the initiative now can help you grow your business, as well as provide a hedge against future downturns. And radical action can help your business grow exponentially. What kind of action? Well, have you thought about acquiring another company: buying a distributor or supplier, or even a local competitor?
If you’re still fixated on capital preservation, maybe buying a business hasn’t occurred to you. However, business owners are buying and selling other companies every day in your own backyard. Perhaps one of your suppliers is struggling, the owner desperate for working capital to keep their business afloat. Or maybe a local competitor has a “Going Out of Business” sign in their store window.
Think about how integrating a new business with your existing business might benefit you. A well-planned and executed acquisition can help you:
- Increase your supply-chain purchasing power
- Reduce production, supply, and distribution costs
- Improve your information technology infrastructure
- Increase the numbers of talented workers in your ranks
- Scale up your production capacity
- Expand your customer base
- Diversify your revenue streams
- Reduce competition
A smart acquisition is one made to achieve a subset of these outcomes, but the impact on your overall revenue and profits can be dramatic. Ignore the noise, and assess your business fundamentals honestly. If you’re on relatively sound footing, take the risk to take your business to the next level
If you don’t know of any good acquisition prospects offhand, many online marketplaces specialize in business sales. Members of your professional network may also include, or be able to point you to, owners looking to sell. Once you have a few prospects, you’ll need to consult with your business partners and your management team. Your attorney and your financial team will need to do their due diligence on each prospect, and you’ll want to have some in-depth conversations with your department heads whose areas will be most affected by the acquisition. For example, if you’re considering buying a manufacturer of a component used in your products, speak with your production head about the manufacturer’s operation. Find out whether there are logistical snares that will prevent you from achieving your goals for the acquisition. Will this purchase truly cut supply costs and allow you to increase overall production capacity? Or does the manufacturer perhaps use technology and practices that are incompatible with your own?
Find out before you sign anything. But don’t deliberate too long. Business owners buy and sell companies every day, and before you know it, the one you’ve found may receive a competitive bid from a third party.
Another reason not to wait: interest rates are extremely low. The Federal Reserve decreased the federal funds rate to 0%-0.25% to address the economic damage from the coronavirus pandemic, bringing the prime rate to 3.25%. In other words, you may qualify for business funding that’s cheaper than it’s been since the Great Recession.
An experienced lender, Moby Capital can help you obtain funding for your business acquisition plans. We’ve helped secure companies like yours obtain as much as $5 million in traditional loans, as well as alternative financing options. Take the first step towards your first or next acquisition by contacting us today.