Forecasts already predict that 10-20% of businesses will fail because of the COVID shut downs. For opportunists, this may be the time to grab a great discounted deal due to someone else’s misfortune. Investors with the cash or access to credit will be able to buy and flip businesses with significant returns on their investment. It is unfortunate, but many business owners have nowhere else to turn when the losses are unrecoverable and will be forced to sell¹. Restaurants, bars and nightclubs will likely be the most active market segment in business sale transactions. There may be opportunities for buyers to get into the restaurant industry for a song, and even for existing businesses to expand to new locations with space already built out for food service establishments.
When there is a recession, people have less disposable income for luxuries like fine dining. People don’t typically change what they eat or drink, rather, just change where they get it and how much they are willing to spend. Off-premise alcohol retailers will be a big beneficiary of this economically challenging time. Liquor stores will sell more wine and liquor as people go out to bars a bit less and opt for gatherings at home and date night in. Grocery and convenience stores will sell more beer and hard seltzers as people begin to eat more at home. These businesses will continue to be strong in the economic downturn ² . Although it may seem that excesses and discretionary spending on things like lottery, drinking, vaping and tobacco might be the first thing to go in a family’s cash-strapped budget, people actually spend more on them during a quarantine and recession as a way to have some simple comforts, coping and numbing themselves from the general malaise, worries, and stress of the situation. This is especially true if their own livelihood is one of the harder hit industries. More drinking, smoking, and stress eating of junk food mean more profits for convenience and grocery stores.
Restaurants in the fast food and fast casual sector will see strong sales for the same reason. Healthy eating is a bit more of a luxury because it costs more. When times are tough, more affordable food options will be preferred ³ . The new delivery model for food will have gained significant momentum with prolonged use by customers during the quarantine. Businesses with a well-designed delivery program will thrive well after restaurants and bars re-open for business. This can be a new revenue source for some restaurants and bars who previously had weak sales or no program previously. For profitability, the take-out and delivery menu must focus on foods that travel well and have minimal labor customization for individual orders.
For those interested in buying a business, there may be some hidden gems out there. Partner with an experienced broker who can locate a business that fits your target metrics. Also, partner with an experienced business attorney to facilitate the purchase process. You may hire an attorney to represent your individual interests throughout the sale process, or if the transaction is fairly standard, both buyer and seller can opt to use settlement attorney services instead. The settlement attorney will be a neutral third party who transfers title, removes liens and can even do private financing agreements such as seller financing. In the rare situation where a dispute unexpectedly arises, the parties can bring in a separate attorney to negotiate in their respective interests. This is less common in New York than in other states, but at least one local firm offers these settlement services.
¹ In 2010, Harvard Business Review looked at which businesses crumbled and were left behind after the 2007 recession. 17% of companies in the study didn’t survive the recession at all and went bankrupt, were acquired, or went private. https://www.inc.com/sujan-patel/why-a-bad-economy-may-be-the-best-thing-for-your-business.html
² https://www.entrepreneur.com/article/233491