If you’re a driven entrepreneur or have just always wanted to purchase a business of your own, is today a good time for you to go for it? In the present difficult economic situation, your first thought would likely be something negative, but keep in mind that wherever there is adversity, there is an opportunity for making a profit, and that all sorts of individuals have become extremely successful in periods of crippling economic news. Whilst you always need to be prepared to work long hours and make sacrifices when you own a business, you will need to have additional resources and an even stronger temperament should you consider buying a business in a recession.
One of the biggest difficulties you’ll have to surmount deals with financing. Never underestimate the amount of money that it takes to get a business off the ground and moving forward. Don’t just look at the numbers which you come up with when you value a business, but estimate how much it would cost you to operate the business for three years. Once you have a figure, quadruple it!
To acquire financing from a reputable bank or other institution in the current recession might prove to be a nearly impossible endeavour. The days of easy money are well in the past. You’ll need a flawless personal credit rating at the very minimum, and you’ll also likely have to put up quite a bit of money and personal collateral too. Banks and lending institutions are extremely cautions nowadays, and if they’ve any significant reason for concern they may cancel established lines of credit, even if the business has a perfect track record and an excellent credit rating. If possible, always ensure that you’re not relying on an unstable foundation in your business.
Right now is the ideal time to negotiate seller financing so take advantage of the fact that banks aren’t lending and keep the seller on the hook for your success by having them carry a balance of sale.
Make sure that you identify a need for the product or services that you will be selling. It is not enough just to own a business, your offerings must be in demand. While many people seem to think that business of all kinds will shrink during the recession, this is not necessarily the case. There are certain types of business that will enjoy an expansion during a downturn and there are categories of business that can be classified as essential. Maybe you should buy a business which is “bulletproof” through a recession?
Don’t be intimidated by the idea of thinking outside of the box when it comes to purchasing a business. You may find the solution that will fit your needs perfectly. Whilst many might feel that the type of business you’re considering is foolhardy, you might consider that it represents additional opportunity. For example, whilst lawn care service might appear to be a luxury, many people are finding that they have additional pressures on their time and can least afford to spend hours in the yard themselves.
There’s one particular thing to bear in mind in times of recession however – do not let emotions come into the decision making process. Use your head and make sure that when you are ready to look at a business for sale, you have the right fundamentals in place, can finance or have definite access to finance to ensure that the business can exist for at least three years. Be as diligent as possible when it comes to assessing the absolute need for your product or service, in bad times as well as good.
Richard Parker is the author of the How to Buy a Good Business at a Great Price series. As President and founder of Diomo Corporation – The Business Buyer Resource Center, his materials, seminars and consulting have helped thousands of business buyers realize their dream of buying a business.
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