The last two years of the coronavirus pandemic has been a challenging time for almost every business, with many undergoing seismic changes. Although the economy is now steadily recovering, there may be fears and uncertainties about taking the plunge to buy a business.
However, some industries, such as engineering, manufacturing and e-commerce, have seen dramatic increases in demand during the pandemic, leaving ample opportunities for entrepreneurs. Many businesses are also prioritising growth for the first time in two years, making it an excellent time to invest and nurture a new venture.
Buying an existing business rather than starting one brings benefits that make it an appealing choice post-pandemic. It can be an excellent beginning point if you find a company with a strong brand reputation, existing customer base, and a good income level. This is especially important in the current climate, so you can gain insight into how the venture has survived the pandemic and its present state, enabling you to gauge its resilience and position in the post-COVID world.
What needs to be considered before buying?
As a potential buyer, you must carry out sufficient due diligence on the business for sale. This should be undertaken early on, before exchanging contracts or completing a purchase. This will establish the business’s assets, liabilities, and commercial potential. It can also enable you to assess both the current and future impact of the pandemic on the enterprise.
Accessing financial forecasts will be particularly beneficial at this stage, offering insight into the company’s revenue, cash flow, and performance.
There are some areas you should focus on when identifying if a business is right for you, especially given the challenges of the last few years. These include:
- Employment issues: Check the steps the selling owner has taken in its duty to protect the health and safety of its workforce and create a COVID-secure environment. This will also flag any disputes that may be transferred with ownership.
- Supply chains: Assess the strength of the businesses supply chain, especially given ongoing disruption stemming from COVID-19 and Brexit, and any obstacles this may present.
- Funding support: Many businesses will have utilised financial support to overcome coronavirus-related issues. Develop an understanding of any schemes or government measures used and whether any of them are (or may become) repayable. This will help you determine any debt you may be overcoming which affects the business value.
- Insurance: Review how much the seller is covered for losses arising from a business decline or disruption stemming from an internal COVID-19 outbreak and any similar events that may occur in the future.
- Material contracts: Determine whether the seller will complete any material agreements and the possible consequences of non-performance, especially if this may cause issues in the long run that you will be left to deal with.
Despite restrictions easing, the coronavirus pandemic continues to have ramifications for businesses, including ongoing uncertainty. Due to this, investing in an established venture with a stable income could be a more reliable option. However, you must ensure that any the business’ valuation reflects any lasting risk and that you seek protection through indemnities if problems arise.
The business you choose to ultimately buy will depend on your ambitions, preferences, and available opportunities. But understanding the potential and any coronavirus related damage will influence your choice.
Buyers often overlook whether they should get the business valued by an independent broker, and the answer is always a big YES! By utilising the advice of a broker and getting an accurate valuation, you can ensure you get a good deal and make the best choice.
If this is the guidance you want to access, contact a UKBA advisor today.