As with almost any question in business, the answer to that is, “it depends”! The fundamental points to consider in buying a business don’t change whether the economy is booming or struggling, so take the time to consider these issues.
Can you make it a good business?
Before buying a business make sure that you understand its current state, and in a recession, the situation may be changing faster than you anticipate, or perhaps even the sellers appreciate. Just because it was a good business at the time of the last accounts, doesn’t mean it is now.
Many UK businesses are still settling the commercial impact of Brexit and the huge change in consumer attitudes and behaviours from Covid. These impacts are hard to separate from the current impact of inflation, which is making pricing decisions very hard for most businesses and means evaluating underlying customer demand is definitely a challenge. Remember also that rising interest rates and general consumer uncertainty can lose any business a key customer.
Equally important to remember is that just because it isn’t a good business now, doesn’t mean that you shouldn’t buy it. Think carefully about what it is lacking and what will it cost you to fill the gaps. Businesses can often struggle with changes brought on by the uncertainties of a recession, but an outside perspective and different resources can often find ways to solve these relatively quickly and cheaply.
The last part of that issue though is to make sure that the impact of any acquisition on your current business is also considered – if you pull out cash and the focus of great people to transform an acquisition, your existing business is much riskier than it used to be, and recessions affect all businesses.
Is the price right for the risk you are taking and the skills you are bringing?
The price needs to work both for you, reflecting your risks and efforts, and for the seller. Sellers think about their options, they often think that they aren’t sure about selling (they may have cash reserves) and equally often underestimate the risk they are taking in continuing to own their business. The main option sellers will be thinking about is who else might buy them and it may be that their business is worth much more to someone else than it is to you.
There is a lot of overseas interest in buying businesses in the UK at the moment as the exchange rate, particularly to the dollar, can make good businesses look like a bargain. There are also private equity funds of various sizes with significant cash holdings and businesses in sectors where they can bring some synergies.
Focus on the value you can add and the benefits that adding this business to yours are, think about the price and costs – and then take the decision. Don’t be afraid but do be smart!
Our corporate finance team can help you find a suitable business to buy, handle negotiations, formulate offers, develop valuable financial models, assist with raising finance and undertake financial due diligence to ensure you buy with confidence and assurance. For further information, contact Ryan Bilsborough by clicking the button below.