Buying a Business with Decreasing Revenues a Good Idea?

September 22, 2023

by an intermediary from Edgewood College in Fresno, CA, USA

What happens when you’re evaluating a business with excellent performance in tax returns but with decreasing revenues this year?

Does it make you back out or move forward? In today’s video I’ll discuss how to make a decision based on available data.

#leolandaverde #businessesforsale #buyingabusiness #howtobuyabusiness #businessbroker

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Reply by an intermediary
from California State University, San Bernardino in Stratton, CO 80836, USA

I believe its worth repeating that in the FINRA world it is often noted "Past performance is no guarantee of future results." There are a lot of reasons you should absolutely look at past numbers but I don't believe the past guarantees anything in the present or future. Treat the company as you would looking at buying a stock. You buy a stock not based on the past but rather on the potential of what it will do in the future. Can you make a difference to those declining numbers and produce something greater? If yes, then negotiate better terms from the declining numbers. If no, then you are probably only looking at buying yourself a job. Its for the same reason I used to tell my wealth management clients don't view the purchase of your home as your dream home but rather view it as an investment. How you view your purchase matters significantly and it will impact your results significantly.

Reply by a searcher
in Toronto, ON, Canada

As a general rule of thumb I don’t buy turn around businesses. I would only ever recommend the purchase of a turnaround business if it is a 100% seller financed deal. With a monthly payment structure contingent on the business hitting quarterly numbers. It could be structured as an earn out with the seller being allowed to participate on the upside. The seller would need to stay on for a 2-4 year term to stabilize the numbers. It would have to be in an industry with 20% or higher margins.

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