Buyers who are looking to purchase a business right now are strongly considering “Essential Businesses” to be their best bet, and they are right to lean in that direction. For years, I have been giving buyers the same answer to the question, “What are the best businesses to buy?” I always say that if I was buying a business myself, I would choose something that is “recession-resistant” and our current economic challenges are proof that this is a smart buying strategy.
Often these types of businesses are not the glamorous ones, and they are not necessarily the ones purchased with passion or emotion. They are more practical, and often require skilled labor, but they are tried and true, and they offer services to the public that would most likely continue during an economic downturn. You want to make sure you choose a business that is a smart buy, but that you will also enjoy running. Finding a happy medium between the two is the goal.
'Recession-resistant' businesses aren’t necessarily exactly the same as 'Essential Businesses' during this COVID-19 lockdown, but there is a lot of overlap. Some essential businesses are absolutely booming right now, but just because a business is deemed essential, doesn’t mean that it is thriving and seeing great revenues. Take gas stations for example. They are open, they are essential, they are recession-resistant, because people need gas to drive their cars, but in this case of a “stay-at-home” order, a vast majority of the population is staying at home, working from home, not commuting, not taking trips, and therefore are not needing to make frequent trips to the gas station. Furthermore, gas stations make more money on convenience store sales than they do actual gas, so less traffic through the station getting gas means less sales inside too.
Types of Essential Businesses
According to the Sarasota Herald-Tribune, here is a list of Florida’s Essential Businesses:
Healthcare providers: Including, but not limited to, hospitals, doctors’ and dentists’ offices, urgent care centers, clinics, rehabilitation facilities, physical therapists, mental health professionals, therapists, and pharmacies
Food providers and grocers: Grocery stores, farmers’ markets, farm and produce stands, supermarkets, food banks, convenience stores, and other establishments engaged in the retail sale of canned food, dry goods, fresh fruits and vegetables, supply, fresh meats, fish, and poultry, and any other household consumer products (such as cleaning and personal care products). This authorization includes stores that sell groceries and also sell other non-grocery products, and products necessary to maintaining the safety, sanitation, and essential operations of residences. The sale of alcoholic beverages is included.
Food cultivation: Including farming, livestock, and fishing
Social services: Businesses that provide food, shelter, social services, and other necessities of life for economically disadvantaged or otherwise needy individuals
Media: Newspapers, television, radio, and other media services
Automobile: Gas stations; new and used automobile dealerships; auto-supply, auto-repair, and related facilities
Finance: Banks and related financial institutions
Contractors and other tradesmen: Including appliance repair personnel, exterminators, and other service providers who provide services that are necessary to maintaining the safety, sanitation, and essential operation of residences and other structures
Mailing and shipping: Businesses providing mailing and shipping services, including post office boxes
Colleges: Private colleges, trade schools, and technical colleges, but only as needed to facilitate online or distance learning; and residence halls, to the extent needed to accommodate students who cannot return to their homes
Laundry: Laundromats, dry cleaners, and laundry service providers
Food service: Restaurants and other facilities that prepare and serve food, but subject to the limitations and requirements of the order. Schools and other entities that typically provide free food services to students or members of the public may continue to do so on the condition that the food is provided to students or members of the public on a pick-up and takeaway basis only. Schools and other entities that provide food services under this exemption shall not permit the food to be eaten at the site where it is provided, or at any other gathering site;
Office supply: Businesses that supply office products needed for people to work from home; businesses that supply other essential businesses with the support or supplies necessary to operate, and which do not interact with the general public;
Delivery: Businesses that ship or deliver groceries, food, goods, or services directly to residences
Transportation: Airlines, taxis, and other private transportation providers providing transportation services via automobile, truck, bus, or train
Senior care: Home-based care for seniors, adults, or children; assisted living facilities, nursing homes, and adult day care centers, and senior residential facilities
Professional services: Such as legal or accounting services, when necessary to assist in compliance with legally mandated activities;
Outdoor care: Landscape and pool care businesses, including residential landscape and pool care services;
Childcare: Facilities providing services that enable employees exempted in this order to work as permitted. To the extent possible, childcare facilities should operate under the following mandatory conditions: Childcare must be carried out in stable groups of 10 or fewer (inclusive of childcare providers for the group); Children and child care providers shall not change from one group to another; If more than one group of children is cared for at one facility, each group shall be in a separate room. Groups shall not mix or interact with each other.
Businesses operating at any airport, seaport, or other government facility, including parks and government offices;
Pet supply stores
Logistics providers: Including warehouses, trucking, consolidators, fumigators, and handlers
Telecommunications providers: Including sales of computer or telecommunications devices and the provision of home telecommunications;
Propane or natural gas provision
Office space and administrative support necessary to perform any of the above listed activities
Construction: Open construction sites, irrespective of the type of building; Architectural, engineering, or land surveying services;
Factories: Manufacturing facilities, bottling plants, or other industrial uses;
Waste management services: Including collection and disposal of waste
Lodging: Hotels, motels, other commercial lodging establishments and temporary vacation rentals
Veterinarians and pet boarding facilities
Mortuaries, funeral homes, and cemeteries
Firearm and ammunition supply stores
Any business that is interacting with customers solely through electronic or telephonic means, and delivering products via mailing, shipping, or delivery services.
Some of our favorite recession-resistant businesses are lawncare companies, HVAC companies, pest control, plumbing, delivery and transportation services, senior care (especially in Florida), pool care, and healthcare services. Almost all of these businesses require specialty licenses from the State of Florida to operate. Now, the owner of the business doesn’t have to hold the license, but there does need to be a licensee that qualifies the business. This person can be a business partner or employee, but they should be in a key role with the company and have a written contract to keep them with the company, as your qualification to operate the business depends on them. It is a good idea to get the required license yourself, so that, as the owner, you never have to worry about being able to keep your business running if your qualifier should bail out or leave the company. Often when you are purchasing a business that requires a state license to operate, the seller will help the new buyer either by getting licensed or by qualifying the business for a certain amount of time while the owner is able to get their own license for find a replacement qualifier. Usually the seller is compensated for qualifying the business. If you are planning to purchase a business that requires a state license with an SBA backed loan from the bank, chances are, the lender will require the purchaser to carry the license that qualifies the business.
Banks are obviously being cautious about who they are lending to at the moment. Even during the height of our economic prosperity, most lenders will require that buyers purchasing a business which requires a state license to hold that license themselves or have the license holder on the note with them. Furthermore, for certain industries, it can be quite difficult to get a loan to acquire a business when you have zero experience or background in the industry. So, if you are serious about buying a business using an SBA loan, then you should get some experience first. Work in your desired industry before you jump in. Not only will it make you a stronger candidate for your loan, it will give you a good idea of whether or not this is the industry for you. Lenders also will consider “transferrable” experience; for example, you used to own a pool service company but now you want to buy a lawn care business. Sometimes that will be enough, but ultimately it depends on the circumstances of each individual situation.
Buying A Non-Essential Business
If you have a passion for owning a business that is deemed as non-essential during these difficult times, such as a restaurant, a beauty shop, or fitness center, then you may be able to get a good deal at the moment, while snagging a great business. Many of these businesses are still generating sales while their doors are closed to the public (via take out, product sales, live-streaming of classes etc), so those will be more valuable and more saleable. However, you will most likely need to have cash to purchase a business like this right now, because of all of the lenders we’ve spoken to this week who are still lending, will not entertain applications on certain businesses (like restaurants) that are not allowed to operate normally at the moment.
How We Can Help
If you are interested in purchasing a business in the near future, please reach out to us and we can help guide you in the right direction. As always, our services are 100% free to a buyer. We are paid at closing by the seller's broker, who splits their commission with us. It is in a buyer's best interest to have an experienced broker helping them through the sales process, and why not have one when there is no cost to you?