This is a tragedy.
But it is also an opportunity.
Inside of every business closed there is SOME value. From the machines, to the customer list, to the site, to the signs, to the website… I could go on.
Some of these selling for parts are relatively easy. If the business owner has material assets in the form of significant leasehold improvements, FF&E, inventory, transferable permits and licenses, or a coveted real estate location (whether owned or with favorable lease terms), they may still be able to find a buyer for these assets in place. The wild part is, they usually NEVER look.
Surprisingly, the majority of small business owners simply shutdown, without selling.
They are beaten down and tired. They have just lost their business baby. In fact, a business sold for its assets alone can be valuable (especially at a discount), regardless of its financial performance, and many buyers are searching specifically for these types of opportunities now. I am sure. In Yelp’s Q2 2020 Economic Average Report, it states 72,842 of the businesses on its platform have permanently closed as of July 10, 2020. That includes 15,770 restaurants, 12,454 retail businesses, 4,897 in beauty, 2,429 in the bars and nightlife, and 1,930 in the fitness industry.
But what if you can come in and give them an out, give them some cash or take care of some of their customers in the time of need. In this type of sale, you are acquiring the assets of the business and not an ongoing operation and its cash flow. So the model’s a bit different. I just got off the phone with a UA’er who owns a gym in Dallas. She’s a badass. She owns a gym called Grit by Brit. You might have seen her face on recent Chase commercials. Brit has ALWAYS grown organically. No money raised. No investors. She’s gritty. Get it?
Anywho, we were talking about how sad it is about all the businesses and her fellow gym owners closing and I was like BRIT – you need to be helping them. She said understandably, “I have, I’ve bought some equipment from them and been there for them.”
To which I replied, “You are missing the boat entirely. The opportunity is in helping them sell by you buying things from them.” So we hatched up a plan.
- Reach out to all of the owners of the businesses in her sector who have closed.
- Tell them she wants to help them recoup some of their costs.
- Why don’t they do a deal where Brit gives the owner 50% of all the revenue from her clients she transfers over to Grit by Brit for 6 months or even a year of them being a member. (Look at your individual COGS to figure out what you could afford here).
- Could even bring in the owner to her studio to do a final farewell class, or a week of classes and handhold her clients over.
- Help the owner draft up an email/social/marketing etc for all her clients to explain how she didn’t want to leave them without a gym home, so she found them one.
- Give the owner a lifetime membership to come workout at Grit by Brit, welcome her to the family.
What we just did is acquire all of this business’s customers for nothing. We gave them a home. We gave the dejected owner a win. Hell the owner could even say they sold their business instead of closed it. Those ego blows help.
Employee Transfer: “Acqui-hire”
- Could also do the same process with employees of the other gym owner.
- Ask the owner to help with transferring their best employees AND THEIR ROLODEX OF CLIENTS
- Acqui-hire is what we call this in VC land but in this world you could give the owner and the employee a % rev share of profits
We kept brainstorming here but honestly crew, if you run a business and you aren’t out there trying to buy up your competitors closing. YOU ARE MISSING A HUGE OPPORTUNITY.
GYMS, FINANCIAL ADVISORS, RESTAURANTS, CPG… any business should be doing this. So go get it done. Before someone else does.
Goes without Saying But Here’s How I see it: Benefits of Buying a Closed Business for the Buyer
Many buyers are looking for closed businesses because they (ARE AT A MASSIVE DISCOUNT) and might offer the right location, time savings to market, and good value. Particularly attractive to experienced business operators with the know-how to effectively leverage the assets. In a recent BizBuySell survey, 14% of business owners who were looking to buy another business were doing so to either upgrade or expand locations.
- The location is desirable and hard to replicate
Real estate is all about location, location, and location. If you find that location and it happens to be a closed business, don’t automatically dismiss it.
- Speed to open
One of the (MANY) advantages of buying a business over starting one is the time-frame to profits. Successful established businesses are already generating profits. Buying the assets of a closed business gives you an option somewhere in the middle. Build-out, securing equipment, licenses, permits, and the like can be time consuming endeavors versus starting with the assets of a closed business which can give you a significant head-start, and at a lower price.
- Buy the Guts Not the Fluff
You can acquire the “guts” of a business without having to pay a premium for any cash flow. In short, some relative bargains can be found out there for savvy buyers who have the knowledge on how to capitalize on these opportunities. This is really only if you know how to run the business or already have one that compliments.
Why It’s a Win for the Seller
- Made significant leasehold improvements aka spent a lot
Bankruptcy, a lease over your head, debt. These are scary things for business owners and they’re real. Read about this business and feel the pain of closure. What if you can save them from some of that? https://hbr.org/2017/03/shutting-down-your-business-gracefully
- Physical assets in the form of FF&E, licenses, intellectual property or inventory
From BizBuySell, “Sometimes the physical assets of the closed business may carry enough value themselves to warrant pursuing a sale. For example, in the bar and restaurant industries, liquor licenses are a valuable and coveted asset. Similarly, specialized cooking, refrigeration, and cleaning equipment is of value to a new restaurant operator. The sale of assets is extremely common in the restaurant sector, where starting from scratch can take a year or even longer before becoming fully operational, often due to lengthy permitting processes. In other sectors, such as manufacturing, there may be extensive value in existing infrastructure or in specialized factory equipment, inventory, or intellectual property that can be repurposed by another manufacturer.”
BUY WHEN THERE IS BLOOD IN THE STREETS. That is what you need to remember. Economic recessions are the great equalizer. What if you can help a tragic situation with sellers and build up your business? Oh wait, you can.
Codie Sanchez & Ryan Snow
Co-founders Unconventional Acquisitions