Buy Low – Sell High: This practice makes sense with investments and it makes sense when thinking of your business value. If you started the business from scratch, hopefully it has been built up to a profitable venture and you have plenty of equity. If you bought a business and have increased it revenue and profitability, most likely you have increased the overall value of the business (as you have read in past blogs, there are other variables to consider).
What most people are looking for when buying a business are the revenue trends over the last 3-5 years. If the revenues are stable or growing - great. If they are in decline, we need to understand the reasons for it. The reasons for the decline might keep a buyer interested, however, there are more perceived risks associated with a downward trend. This will prove to be a negative impact on business value. One of the other difficulties in selling a business with downward trends: banks willing to finance a business in this situation are an endangered (maybe extinct) species, forcing the seller to become the lender.
Many times we see business owners pass up the opportunity to sell at the high point, and who are instead pressed into selling at the worst time due to age and health concerns. An owner who decides to keep working into their 80’s inspires many of their family, friends, and peers. I’m sure any of us would feel blessed to be able to do that. But too often those companies lose momentum as the owner loses energy and passion and we end up with a distressed business.
Buyers want good businesses with strong trends and business owners can get more for their business when they exhibit strong revenue trends. Hmmm, seems like a winning combination!