Let’s look at three different situations in which businesses may find themselves and how people in my buy-sell world look at them.
- Losing money.
- Recent upward trend or reduction of expenses. Is it a spike or a trend?
- Long-term consistent growth with steady profits.
I’ve recently been involved with a couple deals where the company has been losing money. While the company was a logical fit for the buyer, here’s what happened and what always happens in this situation.
The buyer put the company under a (very) time-consuming microscope.
And when things take a long time (too long) other factors come into play. In one situation there was a new strategic focus with the buying company and the deal died. Had the company been profitable, or at least breakeven, this deal would have closed months prior to the strategy shift.
The company in this short example truly has to be sold to someone in their industry, especially as it has not been performing well. However, I see a lot of lousy companies being marketed as gems in the polishing process (you can see a ton of them by simply going to www.bizbuysell.com).
Simply putting “lipstick on a pig” by making assumptions, adjustments and adding-back expenses (saying they are expenses that are unnecessary to operations) to make the business appear to be making money (or more money) is foolhardy as it only fools the naïve buyer, and that leads to more work for all the attorneys.
More on the other two categories in the next two posts.
“What should we stop doing?” Peter Drucker (quoted in Inc. Magazine’s article titled, “35 Great Questions)