Selling A Business Not Making A Profit
We have lots of buyers here in Louisiana and southern Mississippi that will buy a business that is not making a profit or making only a small profit. Roughly one-third of all the businesses we sell fall in this category. Obviously someone buying a business such as this must have a game plan to turn around or improve the business.
Why would someone be interested in such a business?
There are many reasons. Here area some:
- The business has a valuable location. This could be in an area where locations are hard to find or heavily restricted by governing authorities such as alcohol, late hours, historical district, etc.
- The business has a valuable specialized license for gambling, alcohol, medical services, etc. that is hard to get or on which there is a current or permanent moratorium.
- All furniture, fixtures and equipment are in place and operational.
- The business occupies a retail or manufacturing location that is “built out” with all building and operational permits in place.
- Suppliers/vendors of goods/inventory are in place.
- A significant/critical yellow page ad is in place. It can take up to 3-4 years for a yellow page ad to achieve full impact as people tend to keep and use old telephone books for up to a couple of years.
- a web page is usually in place.
- Trained employees are in place.
- Inventory/supplies are in place.
- Even though business profits are none or little, the business is not losing money. Businesses started from scratch usually negatively cash flow for 6-12 months.
- In some instances, it is cheaper than starting a similar business from scratch.
- A buyer can be in business immediately, whereas starting a business from scratch can take 1-6 months to get up and running.
- Businesses started from scratch have a 90-95% failure rate in the first year according to Dun and Bradstreet.
- There is a base of existing customers most of whom are usually repeat customers.
- Many first generation immigrants with large families will buy a business of this type. They will replace the existing staff with family members turning what is now payroll into net income. A large reduction in payroll, quite often makes the business nicely profitable.
- If the business is a franchise, the franchisor’s staff will provide valuable guidance and assistance in making the business profitable. Franchise units appropriately run are overwhelmingly successful and profitable.