It seems like so many businesses being offered for sale these days really lousy. Often times they have little or no stated income and the owner wants an astronomical price for the business. To make matters worse, there are often systemic problems with the business like low sales; poor profitability and lack of systems just to name a few… Why should anyone ever consider buying a lousy business like this? It’s widely accepted that the safest and easiest way to get into the business is to buy a successful business. But what good is this advice if there aren’t many successful businesses that your able to buy. You may never find a successful business that you are able to acquire. These businesses don’t stay around long when they are available and they tend to be pricey. They also may be far outside of your budget.
Many more people should consider buying lousy businesses. These types of businesses being offered for sale should be considered asset sales. The acquisition cost should be a discount on FF&E (furniture, fixtures and equipment), inventory, etc… The reality is that 80% of these businesses will never sell and simply close the doors. These are true bargains if you can buy the assets and build a successful business around them.
“buy a business with the right things wrong”
Buying a “lousy business” can be very profitable if “it has the right things wrong”. The right things wrong are the things that you can fix with your resources and skills. The most common problem with businesses is the lack of marketing and or sales. The majority of businesses do an adequate job of delivering goods and services at an acceptable level, but fail to have systems to consistently grow the business. When sales are poor, there is little or no money to address anything but day to day survival and eventual liquidation in some form.
Buyers should aggressively look for businesses with the “right things wrong”. If you are a strong operations person, you can buy a business with strong marketing and sales and plug in your operational skills. A company with good products or services with lousy marketing and sales needs an executive that can sell. Using this approach, you can get extreme bargains!
On average, businesses sell for 70% of the asking price. The lousy the businesses go for deeper discounts. Don’t count on your low offer be greeted with joy by the seller. You should expect your offer to be initially rejected, but every week that goes by without a sale will make your offer look better and better. This is the market telling the seller that your offer is not that bad after all. Don’t be afraid to make several “aggressive” offers to different businesses and exercise patience. Walk away from anything that isn’t a great deal. There are so many lousy businesses, that you will eventually get the business with the right things wrong. Plug in your skill sets and resources and you will have a very nice business.