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Is buying a business in the current economic climate a good idea?

In this article we will look at the acquisitions of businesses during Covid-19.

Businesses has not stopped due to Covid-19. There has however been some interruption which caused some major financial constraints many business owners. Covid-19 and the lockdown period alone, could not have been the only contributable factor to a failed business, and one must also consider circumstances before the commencement thereof.

 

For instance, companies or businesses who invested in their businesses prior to the lockdown would inevitably have suffered a major cash flow shortage. The Lockdown then stopped their turnover and with their cash flow having been minimized or depleted due to their investment prior to lockdown, it resulted in a failure to pay suppliers and employees which ultimately resulted in the eventual closing of their businesses.

 

Does this mean that they had a poor business? Not at all! Businesses needs cash flow injections from time to time. Whether it is to buy a new premises, revamp a current one, or appoint a few key staff members; sometimes you need to spend money to make money. When growth has stopped, changes are necessary to increase turn over again.

 

Covid-19 has caused a lot of misfortune to numerous business owners which is tragic. However, things happen for a reason and maybe what has resulted in a failure for one business owner, might just be the opportunity that another business owner was hoping and praying for.

 

Buying a business in these times must be viewed from a broad perspective and when a proper due diligence is conducted carefully, there is no reason why buying a “failed business” could not result in a very sound investment. Key factors to be considered during the due diligence will include, but not be limited to:

 

  • Price calculations
  • Assets to acquire
  • Taking over of employees
  • Valuations
  • Current service level or supplier agreements
  • VAT