Buying A Biz During A Recession
By Cali Zimmerman - NuWire Investor:
Buying a business that is already up and running can potentially be a wiser choice for an entrepreneur than starting up a company from scratch. In exchange for the higher upfront costs, buyers of an existing business receive a business that’s already on its feet and has immediate cash flow. If investors play their cards right during a recession, they can pay low prices for small businesses that will drastically increase in value once the economy begins to recover. But there are special considerations to bear in mind when purchasing businesses during a recession and buyers need to be extra careful not to sink their money into a business that’s destined to go belly up.
“It may be the best time ever [to buy a business]. It’s a buyer friendly market, which we don’t see often…. People need to avoid this paralysis or fear just because of the ‘r’ word; it’s a very opportune time for people,” Richard Parker, founder of Diomo Corporation and author of eight programs on buying businesses and leading small market intermediaries, said.
Even if buyers shouldn’t let themselves be terrified, it’s important to remember that “the ‘r’ word” has had some real effects on the market that need to be taken into account. It may be difficult to find businesses that are still financially viable. Certain sectors have been hit harder than others; buyers would be wise to steer clear of businesses focused on real estate—such as construction or mortgages—for the time being. If investors are uncertain about a potential business purchase, they should take a look at its history in conjunction with its present state.
“A good business to buy in this economy is one that was making a lot of money and is still making a little money; [buyers will] be poised to make a lot of money again,” Andrew Cagnetta, CEO of Transworld Business Brokers, said. “You can always point to healthcare [as a good sector in which to buy]. That’s going to be good because we have an aging baby boomer population.”
It’s important to realize that a business’s own cash flow is not the only factor that needs to be considered. If the business in question sells to other business, the buyer needs to investigate the financial health of those other businesses as well, according to Parker. Even an apparently thriving business could go be forced to close its doors if half its customers suddenly declare bankruptcy.
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