Why Now Might Be The Best Time In History To Buy A Business
There might not be a better time in history to buy an existing income-producing business.
In the right hands of an experienced organization with high-level skills, infrastructure, personnel, and operational efficiency; underperforming businesses can be quickly turned around to reward their acquirers with consistent, reliable income shielded from inflation and downturns.
The COVID-19 pandemic has reshaped the economic landscape and spawned a perfect storm of factors that have created a buyer’s market for millions of existing businesses including:
- Retiring baby boomers.
- Low competition. The “not so smart money” is chasing Wall Street and gold.
- Pandemic-induced buying opportunities.
THE BOOMER FACTOR –
Baby boomers own about 60 percent of the 15 million privately held businesses in the U.S. according to Christopher Nicholas, Shields & Co., at ACG Boston’s DealSource Select.
With 75 million baby boomers set to hit retirement age within the next 10 years, millions of boomer-owned private businesses are set to hit the market.
The COVID-19 pandemic has had the unexpected effect of accelerating many boomer-owned business exit plans. With mortality staring them in the faces, many boomers are looking to cash out early to reap the rewards of their decades of labor and to spend more time with their families.
MAIN STREET CHASING RAINBOWS –
The COVID-19-induced recession has Main Street investors allocating their portfolios unwisely. Many are either piling on Wall Street or flocking to gold – alternatives the smart money is seemingly avoiding.
Investors are flocking to Wall Street like never before pushing the Dow recently to a new record high. Online brokers like Schwab and E*TRADE are reporting record new account sign-ups.
Young and inexperienced traders who – bored-stiff from COVID-19 quarantine and social distancing – are flocking to free trade platform Robinhood.com to try their hands at day trading for the first time. With no discipline and a penchant for risk, these noobs (newbies) are snapping up high-risk stocks like they’re going out of fashion.
The other group of investors fleeing Wall Street are heading over to gold, pushing its price to all-time highs as well.
Smart money investors – savvy ultra-wealthy and institutional investors – are raising red flags over Wall Street and gold.
Stocks are way overvalued, they say, and are bound for a correction soon. As proof, they point to the Price/Earnings ratio (PE). The Dow is currently trading at a PE of 28.6 – nearly double the historic average of 15, which means there is no corresponding surge in the underlying economics of the companies behind these stocks to justify their prices. They’re overvalued and bound to come crashing back to earth.
As for gold; the last time its price hit an all-time high after the Great Recession, it also hit its all-time low soon after.
Main Street is chasing rainbows in the stock market and gold. This means less competition in the market for existing businesses.
While everyone else is looking to make a quick buck, those with business experience, capital, and the skills to analyze promising businesses will have their pick of the crop.
VALUES APLENTY –
COVID-19 is fueling a surge in undervalued buying opportunities. Many owners of poorly run but profitable businesses are having a hard time keeping their businesses afloat amid the new economic landscape.
Many of these owners are willing to part with their businesses at bargain-bin prices. In the right hands, these undervalued gems in the right industries can be turned into cash cows in little time.
There are so many reasons for those with the know-how and capital to run a successful business to buy an existing one.
- When buying an existing business, especially a successful one, the bumps in the road have already been taken care of by the previous owner. Many of the challenges typically encountered by start-ups would have been overcome by now.
- Many existing businesses are profitable but not running at optimum potential. Opportunities exist to make small tweaks to improve efficiency and, in turn, income.
- There are so many options to choose from. At any given time, there are tens of thousands of existing businesses available for sale in dozens of industries across multiple segments.
For organizations and entrepreneurs with the right mix of skills, talents, experience, analytical tools, infrastructure, personnel, operations, and business network; the opportunities are boundless for acquiring an existing business and correcting its flaws and maximizing its strengths to create another consistent, reliable and recession-proof stream of income.
Michael Foley, president and CEO of Humabilt Capital, oversees the entitlement process, funding, and operations for Humabuilt Capital. Mr. Foley has been a full-time real estate investor since 1995 during which time he has developed hundreds of single-family homes, townhomes, condominiums, and apartments. Mr. Foley started his investment ventures in Long Beach, California, and has expanded to Apex and Durham North Carolina. Mr. Foley is a graduate of the University of California at San Diego.