Buying A Non-Essential Business During COVID-19 can be very profitable if done correctly. You may be asking why anyone would buy a non-essential business in the middle of a pandemic? Because the very best time to buy a business is when near-term prospects are murky, and the company is hated and unloved. Investors can pick up substantial assets at steep discounts compared to their underlying value. Non-essential businesses include but not limited to:
Shoe Stores
Playgrounds
Tattoo and Piercing Shops
Clothing Stores
Fitness Centers
Playgrounds
Tattoo and Piercing Shops
Adult Stores
Book Stores
Non-essential Fabric and
Craft Stores
Non-essential Furniture
Home Furnishings Stores
Bars
Hobby Shops
Music Stores
Smoke and Vape Shops
Plant Nurseries
Pet/Animal Grooming
Nail Salon
Movie Theatre
The list of non-essential businesses can be different depending on the state. The State of Florida designated pro wrestling as an “essential” business. Check your state to determine what is considered a non-essential business. Some non-essential businesses are not a bargain at any price. You must use some criteria to weed out companies that shouldn’t be considered. Here are some suggested criteria for acquisition candidates, but add your own as you see fit:
1) Gross Sales – Gross sales should have recovered at least 80% of pre-pandemic levels.
2) Good Equipment– Equipment is capable of allowing the company to grow 100% without adding major equipment or resources.
3) Products & Services – Changing consumer behavior caused by COVID-19 will have a minimal impact so the business can return to pre-pandemic levels after the pandemic passes.
4) Experience – You possess the experience and skillsets to grow the business at least 100%.
5) Competition – Competition has remained unchanged or improving as weaker companies close their doors.
Buying a business during COVID-19 is riskier than in normal times, which is why the potential returns are so much higher. At the same time, it does have a higher risk, but it’s still less than if you were to start a new company from scratch. Use a business buyer checklist to take a systematic approach that makes it easier to execute the proper steps properly. You will want to create a team of the following professionals to assist you whenever buying a business:
Bank/Lender
Accountant
Business Attorney
Management Team
Business Broker/Intermediary
The best deals always come from motivated sellers. COVID-19 has motivated sellers because they are not willing to risk an unknown future. Their risk profile may be different than yours because of age, retirement plans, lifestyle, burnout, divorce, etc… While the business may come at a discount, the transaction is still win-win because the business owner has decided that they want to exit their company, and your a willing buyer to help them achieve their goal.
Performing Due Diligence During COVID-19 is the same as in normal times, but you can expect revenue to be down. You will need to forecast future revenue and profit based on current information. Forecasting is not an exact science, but you can make a reasonable approximation based on pre-pandemic sales levels and the most recent buyer behaviors and governmental restrictions. You must fully understand where the breakeven point is for the company and your plans to make it profitable in the foreseeable future. Be sure to have sufficient working capital to make necessary changes and fund the business until profitability is reached if it isn’t already profitable. The cost to operate the business should include added expenses due to COVID-19. Research the Centers for Disease Control and Prevention website to learn how to plan, prepare, and respond to COVID-19.
Buying A Non-Essential Business During COVID-19 can be financially rewarding if you take the right steps. Be patient and seek out the advice of professionals in and outside the industry. Many may say it is a bad idea and wait for better times, but it may be too late to get a bargain. Warren Buffet says ” widespread fear is your friend as an investor because it serves up bargain purchases” and ” the best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table.”