Buying a Business in 2021
By Andy Kocemba
While 2020 feels like a year we want to kick on it’s way out the door, there’s a lot of energy and hope as we look ahead to 2021. If you’ve ever dreamt of owning your own business, this could be a great time to make the leap. But, with all we’ve been through this year, there are some unique realities to be aware of as you begin your search. Here are four tips to make sure you buy the best business for you.
1. Know Today’s Market: Covid-19 and the civil unrest we’ve experienced in 2020 have divided the businesses currently for sale into two different groups:
- Businesses that are struggling or failing: These business can be bought for a bargain but will take time and hard work to turn back to profitability.
- Businesses that are thriving: Thriving businesses will demand a premium price, as there are many buyers with plenty of capital, looking for investments.
Additionally, while the uncertain business climate of the last year might change motivations, the current reality is that most baby boomers are not yet selling their businesses. They are relatively healthy, living longer, filling their retirement accounts, and can’t turn of their entrepreneurial drive. Simply put, for strong businesses, we are in a “seller’s market”.
2. Know Your Numbers: The general idea in a seller’s market is that it will be harder for you as a buyer to find a “deal”. Be prepared for the fact that if you find the right business for you, you will need to offer a fair price. Notice I didn’t say “overpay”? You need to understand what you can afford, and what numbers will work for you, so you don’t find yourself in a situation you can’t survive. As preparation, get a strong grasp on your personal budget, how much income you need to live, and how much cash you have available to make a business purchase. With that information, determine within what price range can you comfortably make an offer. Knowing your numbers will protect you and keep you from overpaying should you find yourself in a bidding war. Remember, it’s OK to pay a fair or aggressive price for a good business as long as you can still pay your debts, pay yourself, and create a return on investment. It’s not OK to overpay for a business if the numbers don’t work and it puts you at risk.
3. Prep Your Team: As you buy a business, the team of experts you rely on will play a large role in protecting your interests and making sure you put together a good deal. Your business broker will help you source opportunities and keep a deal on track. Your accountant will help you analyze financials and perform due diligence. Your financial planner will help you get your finances in line. Finally, your attorney will help you properly document and structure your acquisition. As you determine what you are looking for in an acquisition, make sure you keep your team up to date as well. You will need them to all be on the same page to get a deal put together.
4. Be Ready to Act Quickly: Once you know your numbers and have an idea of your target price range, you should also have a clear idea of what cash you have available for your business purchase. Make sure this money is set aside and ready to use. The ability to move quickly can put you ahead of other buyers in the race to purchase a business. Sellers have even been known to take a slightly lower sale price from the buying party who can move quickly. In a seller’s market, it is imperative that you enter negotiations prepared and ready to make a deal.
- If you have been thinking about buying a business, 2021 might be the right time.
- There are strong businesses for sale, but you should be prepared to pay a premium price for them.
- Gather your team, you know numbers, and be prepared to move quickly when the right business comes along.