Buying An Online Business
By Willard Michlin
December 4, 2020
Is Buying An Online Business The Way To Go After COVID-19 Is History?
Last week I received a phone call from Dan in New York City. He and his wife decided it was time to get out of Dodge and move to Southern New Jersey, where the air is cleaner. Dan had located a brick and mortar school that had some online presence. Since the COVID-19 shut down they quickly converted to 100% online classes. But now the business owners want to sell the business, before they see how the business model they converted to will be the wave of the future or if the consumers will want to go back to school in the old red schoolhouse. You’ve seen those pictures of the small-town schoolhouse where six grades are all taught in one room. If you have not, watch a few episodes of any 1890 western.
The point I am making or trying to make is that everyone is assuming that online education is the wave of the future but it is not necessarily so. One of the functions of the public-school system is to get the children out of the house so the parents can go to work. Up until the 1960’s and 1970’s women stayed home with the kids. Father’s salary could support a family completely — not anymore. It takes two or more incomes today to support a family. If you have not noticed, the income of families has not gone up as much as the cost of living. While interest rates have been going down on home loans, they have been going up on consumer debt. The reduction in home loans has not been of any benefit to homeowners because as rates have been going down, the sale price of a house has been going up. This has made the existing real estate loan borrowers wealthier, while it has been playing havoc on the new home buyers.
Let us get back to the real discussion at hand. Will the way consumers do business change over the long term or will things go back to brick and mortar storefronts? The trend to buy goods and services online has been going on for over 10 years. The COVID-19 just sped up the process. You as a business buyer need to be aware that not all people want to buy everything online. Let’s take a few examples.
- I will never buy shoes online. I must try them on for a specific fit. Regardless of how expensive the shoes are, my feet are very personal.
- Trade Schools: Trade schools require close contact with others who are working on similar projects. My wife went to LA Trade Tech and learned pattern making, and dress designing. My great nephew went to a racing school. He is now doing the theory classes online, but he could never do the practical experience classes of tearing and putting back together a race car.
- University Education: The colleges are already assuming that their enrollment will drop when the lockdown is over. I am sure it will. However, the most important reason that young people want to go away to school and not study online is: to get out of the house and socialize with others of their same age group.
- Continuing education for professionals is big business today. I am a CPA with a continuing education requirement of 40 hours per year. Attorneys, engineers, medical professionals, and others where a license is required to operate are busy taking classes. All have continuing education requirements. Most professionals sign up for online seminars or webinar. I did online seminars for 45 years, but I got sick of them. You had to take tests or punch in periodically. I would buy an unlimited annual membership. I would have to change the company every year because I had taken all the courses I had even the slightest interest in. 5 years ago, I decided that I was so bored with the online courses that I signed up for live seminars where I had to drive to them for a whole day at a time. I eat with other attendees and talked with other attendees during the breaks. I think they called it networking before socializing was outlawed. When this COVID-19 is over, I do not ever want to take anything online ever again.
When you buy an existing business, you pay a price based on the history or on the projected future history. The higher the stability of income, the higher the multiple of the current annual income. The more insecurity as to the future income, the lower the sales price.
I see many businesses today being priced on 2019 profit and sales because 2020 is so unreliable as a measure of 2021. Make sure you realize that you are buying unreliable projections. Business buyers want stability while the only constant in this economy is change. Whatever you think will be is a wild guess.
Feel free to share your comments with me.
You can write to Willard at Willard@EvaluateABusiness.com and he will always answer your questions. He can also be contacted at his Seal Beach, California office by calling 805-428-2063
