What factors should I consider when looking to purchase a business that is failing?
In the wake of the coronavirus pandemic, many businesses are struggling. Restaurants and retail stores have been particularly hurt by the business closures in effect in many states. As some sectors of the economy start to reopen, many businesses may find themselves without the capital and resources to make a come back. For savvy investors, now might be the ideal time to identify a failing business that could be turned around. However, there are considerable risks to buying a struggling business and investors must take care to research their options thoroughly. Our NYC business purchase and sale attorneys discuss some tips for buying a failing business below.
Consider the Sector
The pandemic has altered the performance of some sectors of the economy. Businesses that historically have done fairly well may find themselves struggling to stay afloat during the shut down, while other businesses may be thriving due to the country’s altered status. For instance, businesses that make face masks or sanitize offices might be a good short term bet, but investors will need to weigh how long the virus will continue to determine whether these businesses are here to stay. Hurting businesses like restaurants or clothing stores might be experiencing low returns now, but if you see business eventually going back to normal, these businesses might be a good long term bet.
Look at the Company’s Historical Performance
Analyze your potential business’ performance before and during the pandemic. It may seem like a safe bet to find a business that was doing well pre-pandemic, but you need to also project as to how you feel this business will do after the pandemic. How are the business’ customers? Will they return post-pandemic? How about its suppliers and employees? With so much uncertainty surrounding the virus and how it will continue to impact the county, it is best to weigh all sides and consult with others in the field to try to determine the outlook for the business.
Once you have identified a potential business to buy, you will want to consult with a business law attorney for help with all aspects of the transaction, from negotiations to the purchase-sale agreement. Your attorney can help to ensure your best interests are protected when investing your hard-earned capital.