Looking to buy business in the US post COVID -19?

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With a fresh wave of lockdown unleashed upon public, the misery and tribulations of the hoi polloi knew no bounds. An increasing number of COVID-19 cases have put the brakes on the economy again. Just when businesses seemed to pick up in many parts of the world after several rounds of lockdown had been imposed starting from March earlier this year, the tough new curbs can push back the efforts required for the revival of trade and commerce. This unprecedented crisis has also led to millions of livelihoods lost either directly or indirectly.  More than anything else, it is the ill-timing of the latest lockdown that can hurt businesses deeply. Key sectors including Agriculture, Entertainment, F & B, Travel & Tourism, Hotel & Hospitality, Engineering, Automobile, Education, etc will be likely hit by the current wave of pandemic.  

Impact of the second wave on Start-up business globally

Start-up businesses are pushed to the wall with low investment sentiments and general lack of enthusiasm to scale up business operations. Small and Medium Enterprises or Business (SMEs/SMBs), once considered game changers of the economy, particularly Asia and Africa, bear the brunt of the ongoing pandemic. With most businesses, temporarily or perennially shut, the impact of COVID-19, more importantly, has highlighted their strengths and weaknesses in black and white.  Because most start-up businesses depend on seed funding, and subsequently, several rounds of investment, they have been cash-strapped, particularly during the lockdown period, unable to scale up operations and accelerate processes.  The prevailing second wave of lockdown can only make things worse, as consumer behaviour has hit businesses severely once again. For start-ups to even survive, it has to maintain a healthy balance sheet for financial security, given the fact that almost 90% of the start-ups fail in the very first year itself.  

The success of any start-up is proportional to its idea; when a start-up idea fails, hardly do businesses survive and make a mark. Any start-up has to make money, rain or shine, and ensure sustainable business operations for continuance.  It isn’t uncommon for fresh start-ups to have only a minuscule financial reserve for only three months. 

A report published by Startup Genome, a research agency, post COVID-19 reveals that roughly three-quarters of start-ups had to lay off employees. North America topped the chart in terms of layoffs, while Europe came second, followed closely by Asia.

In fact, before the crisis an estimated 29 per cent of the start-ups had three months of cash reserve, the number which has increased to 41 per cent post COVID-19. New businesses, in this case, either have to go for short-term business loans or be contented with considerable slow down of financial flows. Consequently, in only 28 per cent of the cases there weren’t any disruptions in start-up financing channels/borrowing, or the start-ups were expectedly funded. Government funding and waivers on loan interests can actually help start-ups revive its fortunes and survive this economic crisis in the face of global recession.

Why buy an established business in the US?

Let’s follow the discussion above up with a question: Is it a good time to start a business? The answer is a ‘yes and ‘no’. Yes, if you’re already buying an already established business. No, if you want to start a business from scratch. Buying an existing business or an already established brand in the US presents its own advantages compared to a start-up business, the challenges of which can profoundly limit growth opportunities. Any established business having a proven business model, both technological and managerial, offers a defined revenue structure in place, with a few models even paving the way for multiple revenue streams. Buying a business franchise is another smart way to start a business without caving in to the pressures of a start-up.

First, an active customer base allows a buyer to leverage the full capabilities of an established market presence, branding, distribution and supply chain. Therefore, marketing costs involved to attract new customers are substantially reduced so that the buyer can focus on the core business activities.  The costs to attract new business or a customer can be higher in the case of a start-up. 

Good businesses that are built upon a proven system are likely to attract buyers’ attention.  They are nurtured on the principle of ‘Faceless Leadership’ that does not depend on the charisma of the leader for business growth.  With a trained workforce, an established business can draw upon significant knowledge base. Protocols and procedures that are already in place drive the business to achieve the objectives. 

Securing finance, more often than not, is a challenge that most buyers face at the start of the deal. It is relatively easy to obtain working capital for an established business than a start-up. For instance, a working capital lender can check revenues, profits and other financial records to determine if the business is sales-ready.  This would guarantee any established business to be risk-free compared to a start-up in terms of trading.  When it comes to competition, an established business has an edge over its rivals, both physical and offline, which makes it sales-ready. Start-ups have to deal with competition right from day one which can drain off its resources.  This is another potential risk of starting a new business in USA which can be risky, especially in a competitive space.  All said and done it is important for any prospective buyer to carefully weigh the considerations before buying a business in USA, and make your entrepreneurial dreams come true.                 

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