Settlement Guide

Buying a business during COVID-19

Open for business Source: Getty Images/mixetto

The pandemic has sent shockwaves through businesses that traditionally thrive in normal times. But the disruptive nature of viral outbreaks has left some distressed owners eager to offload their burden. Is now a good time to buy a business? According to some, with the right strategies and plans in place, you may be in for a bargain.

Highlights

  • Brokers say migrants are actively seeking opportunities to purchase businesses but not necessarily making the transactions.
  • Experts say new businesses need to have the ability to market and sell online to survive potential outbreaks and forced closure.
  • Seek financial advice to examine the accounts to make sure that the numbers are bona fide.

Small businesses are the backbone of the Australian economy, contributing 35 per cent of Australia’s gross domestic profit and employing almost half of the workforce according to a 2019 report by the Small Business and Family Enterprise Ombudsman.

But the threat of community transmissions has struck down businesses, and Victoria in particular, has been hit very hard. 

Peter Strong, CEO of the small business advisory advocacy organisation, COSBOA, says the pandemic has unfortunately created a bargain hunter’s market. Nonetheless, he urges potential buyers to do their diligence before making any decision.

Lone shopper

He says the first thing is to make sure that the business you are looking to purchase is viable and that the figures you are getting from the business are genuine.  

You go to an accountant and you ask them to cast an eye over your business figures and tell you whether they make sense or not.

Strong suggests examining the figures of the last quarter in particular even if accounts seem promising in general.

He also cautions buyers to pay particular attention to rent and the quality of the landlord.

If the landlord is one of the big landlords then I’d be very very careful about how they may treat you in a crisis.

Business broker and co-founder of Allbiz business sales platform Mathew Holland says his firm has experienced more enquiries than usual on business opportunities from older migrants who comprise over a third of his customer base.

Holland says mature-aged migrants generally go straight into buying a business rather than consider going into traditional work.

Checking out a supermarket
Getty Images/chee gin tan

Six to eight months ago, people would have traditionally purchased a food or franchise food business, or any type of business at a Westfield mall, leasing for three to five years and move on.

But transactions are not happening right now.

They’re looking for anything outside of that but there’s not a lot of transactions to actually gauge at the moment other than a lot of interest.

Recognising the importance of the small business sector which contributes nearly a quarter of the total private sector economic activity for Western Australia, the WA Small Business Development Corporation runs free online and telephone advice service for potential and existing business owners in the state.

Its business advisory services manager Lisa Legena says the majority of enquiries are coming from migrants, many of whom are hesitant to make a purchase due to the unpredictable nature of COVID-19.

She says those aged over age fifty are looking at investing in a business to see them through retirement.

We still have the threat of there being further outbreaks in Australia in terms of community transmission.

Legena suggests starting with solid research to identify whether there is a need at the moment for the particular product or service that the business might be selling.

She notes that the missing link that has failed businesses during this pandemic is the ability to market and trade online in case the business is forced to shut down over several weeks.

Inspecting business
Getty Images/DragonImages

Strong believes that small business owners tend to be overly optimistic when buying a business.

However, in the current environment, it is important not to let one’s emotions override their objective judgement.

Look at what can happen in the future. Is this a business that can survive without customers for two months in a lockdown?

Legena says it is important to consider the environment in which you are purchasing to avoid the risk of not being able to pay your business loans or rent in case you need to close down the business due to outbreaks.

University of New South Wales’ associate professor in marketing Nitika Garg is a consumer behaviour expert.

She believes fatigue has set in as people grow tired of being homebound and working from home whilst managing their children and their studies.

Dr Garg says there are still plenty of opportunities if entrepreneurs know where to look even during a pandemic.

There is an opportunity for newer categories to emerge so whether it is services such as home programs to help people stay active: yoga programs, meditation programs, or meals at home.

Since not all businesses up for sale during the COVID-19 pandemic are necessarily going to be successful and viable, Legena encourages buyers to think hard about their skill sets, the price they are paying for a business and whether the location attracts customers.

She had seen excited people put their life savings into a new business like their local cafe only for it to fail.

It involves a lot of skills: people skills, a lot of time commitment and it’s not quite the same as being a customer.

That is why Holland believes that the absence of a transition between the buyer and the seller can seriously put the new owner in a risky situation, particularly if you have a strong business owner on the way out.

Work out an arrangement for a longer handover. There is nothing wrong with asking for two to three months. There is nothing wrong with asking for six months.

Petrol station
Getty Images/FG Trade

Dr Garg recommends that entrepreneurs take their time to set out their vision beyond the COVID-19 crisis.

Make sure your business plan has both a short-term and a long-term plan and goals because you want to make sure that it survives beyond the context of the pandemic.

For more information on how to start a business, contact The Australian Small Business and Family Enterprise Ombudsman Information Line on 1300 650 460 from 8am to 8pm nationally Monday to Friday. 

 

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