By Jigar Desai
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During these unfortunate times, many businesses have elected to close their doors for financial reasons. This processes of ending a business can result in the sale of a business. Even during these unprecedented times, there are buyers who are actively seeking to purchase a business to expand their operations. The key to a business being successful now and maintaining growth is how they can adapt to the current circumstances while meeting demand post-COVID-19. We have created a list of three businesses that are successfully being bought/sold.
1. A Slice of Pizza
In most states, people have been limited by shelter-in-place laws. They have not been allowed to go outside and participate in activities that they are accustomed to their normal lives before the pandemic. One of these activities is going out to eat at a restaurant. This restriction has left people with the choice of either cooking at home or ordering fast food pickup. Fast food is cheap and convenient for those who are forced to eat at home, and they are also supported by delivery applications on people’s phones. Restaurants usually generate their income off of large profit margin items like beverages or appetizers. However, due to the current pick-up options being forced on restaurants, they are not experiencing the same quantity of those large profit margin items being purchased. Meanwhile, fast food restaurants have experienced growth due to large bundled meals from families ordering together. QSR describes more of this here.
Small business owners that looking to diversify their business portfolios or possibly branch out into different markets should look into purchasing a fast food franchise. The initial impact of the coronavirus took a large hit on fast food companies like Yum Brands Inc. Yum Brands, Inc., who is the owner of Pizza Hut, Taco Bell, and KFC, was forced to close 7,000 locations across the country. Many of their franchisees were forced to walk away from their partnership with the massive fast food company.
So, why would a business owner want to buy one of their franchises? Pizza Hut has recently experienced success during these times. According to QSR, 63% of customers have sought out pizza during the pandemic, the highest of all food categories. Overall, pizza has experienced the highest per-dollar increase. This can be due to the built-in mechanics of their operations; Pizza Hut was generating 50% of their income through sales generated outside of their stores. They have been able to effectively transcend into contactless delivery-only service. This growth is apparent in their desire to hire 30,000 more employees, in comparison to other businesses during this time.
A potential buyer could purchase ownership of the Pizza Hut franchisee from one of the thousands of stores that have closed. He or she should renegotiate a deal with Yum Brands to deliver the down payment required and the royalty percentages owed to them. This means that a franchise owner that wants to part ways with a franchise can assign their agreement to a new buyer. However, many franchise agreements contain a right of first refusal or a right of first purchase. This provides more control to the company over who they will allow to gain ownership over the franchise. Benefits to purchasing from a previous franchise owner is the built-in equipment and potential staff, as well as the possibly favorable agreement that the original franchise owner was operating under. We recommend that a potential purchaser discuss with a lawyer before trying to buy a franchise assignment.
To purchase a new Pizza Hut location from Yum Brands, as they are currently expanding, a potential buyer would have to make an investment of $350,000 to $2 million. This includes the initial fee, equipment, inventory and other start-up costs. Purchasing a Pizza Hut franchisee requires a sufficient amount of capital and liquid cash. A potential owner will be required to pay a $25,000 initial fee at the time of purchase. Pizza Hut also has a financial requirement; the company requires a net worth of at least $750,000 and a liquid cash requirement of $350,000. Pizza Hut will also claim an ongoing royalty fee of 6% and an ad royalty fee of 4.25% of profits generated from the franchise. Franchise Direct has created a full breakdown that you can see here.
2. A Clean Business
As people are staying indoors and in fear of being infected by the coronavirus, the need for proper cleaning service has increased. Cleaning services in both commercial and residential properties are set to experience growth. The market is a $117 billion industry, ranging from janitorial services, pest control and building maintenance. This industry, like many other industries has faced a 1.6% decline, leaving some businesses owners to sell their company. However, the potential growth expected makes a business in this industry an attractive potential buy. Market Research expects a 7.4% gain by 2021, and 5.4% annual gain thereafter to 2025. You can read more about it here. The need for facilities to be deep cleaned due to the virus will spark the growth of the industry. As other businesses are still in operation, there is a need to prevent contagion and outbreak. Even for businesses that have employees who are working from home, these businesses will eventually need office cleaning as their property lease is not likely to be up soon.
Within the industry of cleaning service industry, there are many segments that a business owner can buy and enter the industry though. This industry includes residential cleaning, commercial cleaning, and specialty services. A shift in culture, disposable income, and lack of time due to work have propelled the residential cleaning industry. The residential cleaning industry is the easiest introduction into the overall industry. As of 2018, there were over 900,000 jobs in residential cleaning field alone. This means that there are plenty of employees willing to fill out a great professional staff. Based off current listing at the time of this writing, residential cleaning service companies are selling for less than their other cleaning service counterparts, with price varying based on potential revenue income and size of the company.
The most profitable businesses that are likely to experience massive growth after the coronavirus is the commercial cleaning industry. Potential business owners have a greater variety in this industry as there many large companies and small companies that make up the overall market share. Potential purchasers can evaluate the option of whether they would like to purchase a franchise from a large company or purchase a non-franchise from a medium to small sized company.
The last business sub-segment of the cleaning industry that is experiencing growth is the specialty cleaning services. This segment requires most expertise than the aforementioned businesses, but it is also an industry that is less competitive. The niche nature of the job allows the business and their client to form long-lucrative agreements. An example of a niche business would be a high-rise window cleaning service. There is not much competition in the high-rise window cleaning market, but the industry requires years of learning and expertise. If a potential business owner has the knowledge or is able to develop the knowledge, then they will enter into a lucrative industry. Many businesses are still operating these services and will continue to operate these services after the pandemic. In contrast to the specialty cleaning service, the lifestyle cleaning service is another potential purchase for a business owner who wants to generate a more passive income. Examples of these types of businesses include a laundromat or dry-cleaning service. This industry requires less human capital, training and expertise to manage than the aforementioned options. Purchasing a business from the previous owner allows for the new owner to save on fixed costs, as the equipment is already installed. Businesses listing in all segments of the cleaning industry can be found on BizBuySell.
3. It’s 5pm Somewhere
Alcohol has survived many recessions in the past, and the coronavirus pandemic is no different. As bars are still closed in states with shelter-in-place orders, consumers must meet their alcohol demands by purchasing through a wine or liquor store. The fear of running out of stock has pushed consumers to buy alcohol in mass quantities. Successful businesses have integrated online purchases into their business model to allow for contactless purchasing of the product. For example, Gary Fisch’s store in New Jersey experienced a 62% increase in overall sales and a 20% increase in in-store foot traffic sales. You can read more about Gary and other’s experiences here. Overall, businesses are experiencing larger orders in higher frequencies. This is exemplified by larger units of alcohol being bought more often, such as boxed wines and large cases of beer. These larger units are returning higher profit margins.
Wine stores have adapted easily to the pandemic. Due to their contactless operations, online sales and application of delivery options businesses have provided many options for consumer to purchase their products. Alcohol has been deemed essential in some states, and thus sellers have been able to be ship the products through traditional delivery methods, such as through Amazon. Businesses owners can partner with third-party delivery services, like Drizly or Vivino, to deliver their products to local customers. The combination of these options allows for consumers to buy various amounts of products and expect to have them arrive appropriately and safely, even during a pandemic.
The business of operating a liquor store is unique from the other businesses mentioned, as it requires a liquor license to operate. The liquor industry is a heavily regulated industry and requires the potential buyer to abide by state and local laws. Whether a potential buyer is seeking to start a new business through a franchise or through traditional ownership, they must apply for a liquor license through their state government. Fundera provides a state-by-state guide on how to acquire the license here. For owners who are seeking to purchase a business from another independent owner rather than start a new business, the rules vary depending on your state. Some states allow a new owner to purchase the license along with the business while others make the new owner apply for a new license. The next step would require the potential buyer to set-up channels with liquor distributors who will supply the product. Lastly, the owner must hire staff and purchase inventory. We have provided a general overview, but Lending Tree has provided a specific guide here.
Lasting Thoughts
We have listed businesses that are currently performing well and are poised to make a strong growth after the pandemic is over. This blog does not serve as a guarantee that a potential buyer will find a business at a great price and instantly make great returns. Potential buyers are advised to contact an attorney or business managers before making a purchase.
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