There is no doubt that nearly every industry has experienced significant changes and shifts during the pandemic and, with the continuing impact of COVID-19, it may seem like a highly risky time to buy a business.
However, some industries have seen a rise in demand during the pandemic; highlighting future opportunities for entrepreneurs.
Emily Shingler, Solicitor at Darwin Gray, outlines the benefits for buying a business in the current climate, as well as some top tips for important areas to consider when looking to purchase.
What are the benefits of buying an existing business now?
When you buy an existing business, the concept (including the branding and business know-how) has already been created. You do not need to create your own product or service offerings and there is already goodwill attached to the business. You are buying a tried and tested business. This is particularly important during the pandemic – as you can see how the business has responded and whether it has the financial resilience to withstand the post-COVID landscape. Also, for prospective buyers who are looking to raise debt finance to fund their purchase, interest rates are at an historic low.
What do I need to consider before buying?
It is more important than ever for you, as a prospective buyer, to undertake due diligence investigations to obtain sufficient information about the business you are considering buying. This is to enable you to decide whether the proposed acquisition represents a commercially sound investment.
You should evaluate both the current and future impact of the pandemic on the business. Some areas that require greater scrutiny in the current climate include:
- Supply chains – assessing whether suppliers in the target’s supply chain can still meet their obligations
- Material contracts – evaluating whether the target can still perform its material contracts and what the possible consequences of non-performance are
- Employment issues – reviewing employee absences caused by Covid-19 and reviewing the steps the target has taken to discharge its duty to protect the health and safety of its workforce in light of the pandemic
- Financial assistance – obtaining details of the target's participation in any financial schemes or other government measures to assist businesses during the pandemic
- Insurance – considering the extent to which the target is covered for losses arising from a business slowdown or stoppage due to the COVID-19 outbreak
Before buying a business, you should ensure that all major impact is reflected in the business’ valuation and/or reflected in the warranties and indemnities in the acquisition agreement.