YES! Contrary to the popular belief that a prolonged downturn in the economy means doom and failure to all, the sky is not going to fall in tomorrow. The best way survive and prosper is not to bury your money in a shoebox and hide in your basement.
Those who succeed in post-recessionary periods are those that position themselves for success DURING the recessionary period. Listen, I’m not going to blow smoke, these are hard times. But, as the saying goes, “When the going gets tough, the tough get going.”
Tough means not listening to the negativity, not letting public perception dictate your every move. Tough means sitting down, creating a plan to take advantage of a bad situation, believing in yourself, sticking to your plan and persevering through hard times.
So, can you buy a business during a recession? Yes, absolutely. Will it be easy? No. As you already know, traditional banking institutions are not lending freely. The credit markets have tightened.
So, let’s be conservative and assume that a bank will not participate in your acquisition of a small business. As an individual buyer, you will need to finance the business acquisition from your savings, family, friends and the seller to complete the transaction. Yes, you heard me right, AND THE SELLER.
Seller financing is one of the best ways to complete a deal during recessionary periods. When the economy is booming, sellers are less likely to finance the sale of their business. The phrase often used is, “I’m not buying myself out of my business with my own money.”
This attitude changes during a recession. Sellers realize that the only way they can exit the business during these times is to assist a buyer in the process. However, similar to the process of working with a bank, you will need to convince the seller that you are worthy of the responsibility and the risk. You must differentiate yourself from the other buyers that have requested the same assistance. Do you have industry experience? Then provide a resume. Do you have down payment money? Then provide a bank statement. Do you have collateral to offer? Prove it.
If you present tangible evidence of your ability to share in the seller’s risk, there is a very high likelihood that the seller will assist you in financing the acquisition. Why is this important? With chips still on the table, the seller is incentivized to remain close to the business, train you and ensure your success. Had the economy been in full swing this probably would not have been the case. The seller would have received their money from a third party and headed for the hills.
Don’t get me wrong, times will be tough as you struggle to learn your new business. So make sure you have enough working capital (cash, accounts receivable, etc…) to weather the storm. Don’t spend your savings on the deal. Make sure you have money to operate the business until things pick back up. Once they do, you will have the seller’s support and favorable financing terms that will allow you to reinvest your future earnings in growth capital.
Remember, this recessionary economy is not affecting business owners in isolation. Everyone’s feeling the same crunch. Not all of your competitors will survive the storm. Many businesses will close their doors and their owners will return to stable corporate positions. The business that positions itself properly during recessionary times is the business that will achieve the greatest growth during the economic upswing. (This is why corporate and financial acquisitions remain in full swing).
Don’t be left behind. Don’t hide in your basement with the lights off. Buy now, be cautious, tread lightly and reap the rewards on the upswing.