This sponsored content is brought to you by Oliver Kotelnikov with IBA.
The recent health pandemic has indiscriminately impacted every aspect of the global economy. With the reopening of the economy underway, the sheer volume of information intended to guide the process and forecast the near-term economic climate can be daunting. Monitoring the daily news feed, we are left with all the clarity of having stared for hours at a Jackson Pollock painting. Drawn in by its inherent “can’t look away” quality, interpretations are many and takeaways few. What is one to make of a rising stock market, declining interest rates and oil prices, flattened curve of Corona cases in the neighboring state, sharp spike in national unemployment, and a recommendation to buy gold and hold residential real estate? Absent a crystal ball, making sense of the situation requires clearly defined goals, a thorough understanding of the specifics of the economic sector in question, accounting for regional differences, and reducing the information field to only what is essential. To an entrepreneur wishing to buy or sell a business in 2020 or 2021, the general news feed is only marginally relevant.
Understanding Your Target Market
Entrepreneurs are a resilient bunch who operate from the mentality of abundance and strive to manifest “the possible.” Times of flux signal opportunity. A general downturn is a call to action. Any crisis is too valuable to waste. And if you’re with the crowd, you’re probably moving in the wrong direction. Instinctively and intellectually, entrepreneurs recognize that even the strongest economy in the world is cyclical. Buying in at the tail end of a downturn or on the heels of a unique event we are presently experiencing provides the longest runway ahead to grow the business in optimal conditions of prosperity.
Advantages Of Small Business Ownership In Current Market Conditions
Opportunities are selected based on the investor’s risk tolerance, potential reward, capital requirements, and control over the results. Fair comparisons can be made and parallels drawn in the first three categories. But when it comes to control, most investment vehicles will relegate the investor to a silent partner, awarding them with no more than a buy, sell, or hold button and all the agency of a dandelion in the wind in exchange for their dollars and vote of confidence in the business. No other asset class endows entrepreneurs with the degree of control over the outcome like small business ownership. In times of instability, investors will gravitate towards agile opportunities that allow for a say in the process to capitalize on emerging trends and the rapidly evolving consumer demand.
A Unique Marketplace
Just like stocks, commodities, and real estate, the mergers and acquisitions marketplace is a unique microclimate responding on a case-by-case basis to a specific set of circumstances and often defying conventional wisdom. Unemployment, for instance, is not a bad thing for a business owner looking to transition and seeking a qualified buyer. A rare pool of sufficiently capitalized, capable buyers traditionally absent from the marketplace is created as a result of a downturn. Faced with unforeseen layoffs and long furloughs, career corporate employees and hospitality industry managers and supervisors are using the idle time to revisit and research the idea of small business ownership. Returning to the corporate environment is weighed against leveraging extensive industry experience and a strong professional skill set to acquire and build a business that can be sold in the future to facilitate retirement.
The Usual Suspects
Private equity firms and institutional investors are unfazed by temporary disruptions and unique economic events. Their primary criteria for acquisition remain to invest in quality businesses that perform well over the long haul. Seen from this vantage point, temporary economic instability reduces competition and weeds out the herd. Businesses able to weather the storm and return to the arena will possess increased market share and likely exceed historical performance coming out of a recession. This class of buyers is also capable of fully funding their own transactions by leveraging cash reserves and mitigating uncertainties and time delays in the commercial lending environment.
The Strength Of The Regional Economy
Though not entirely immune to downturns, the Pacific Northwest economy is well equipped to recover and bounce back quickly. Small businesses in the retail and hospitality sector will benefit from the strong regional economic engines such as Microsoft, Google, and Amazon as the tide that lifts all boats as those companies come back to work. The return of the hospitality businesses will be incremental, but the long-term outlook on our regional economy is characterized by optimism and confidence. The combination of life-style choices, economic opportunity, and favorable customer demographics will continue to attract buyers and investors looking to purchase a business.
IBA is Northwest’s oldest business brokerage serving entrepreneurs in the hospitality industry since 1975. We welcome the opportunity to share our knowledge and experience with business owners. 100% of IBA’s commission fees are paid on performance at completion of the sale, including providing a professional opinion of market value of a business for potential clients. For more information, please contact Oliver Kotelnikov in the IBA’s hospitality industry transaction group at (425) 454-3052 or .