One common reason for a business owner to decide to sell their business could be the fact that it is no longer performing well. If a company is costing more to keep afloat than it is producing in profit, and it isn’t looking likely that their success is going to change, it isn’t a worthwhile investment for most owners anymore.
However, if you believe you can identify and fix the problems with a failing business, purchasing the company could be worthwhile for you. Just make sure to value a business before you consider investing. When you’re confident that you have the expertise to coach a failing business toward success, it may still be more accessible than setting up a company from scratch. In this article we will be answering the question: ‘Is buying a failing business ever worth it?’.
Advantages of buying a failing business
A great advantage of purchasing a failing business is the lower price point. Buying a company that isn’t producing profit is a risk, and it won’t ever sell for the same amount as successful companies at a similar size.
If you have experience owning or coaching businesses in the same field, this lower price point is enough to make a failing business tempting. You’re parting with less money initially, so you have more money to spend on management and marketing to create and increase company profit.
An existing business, even when failing, already has a reputation, a brand voice and a client or customer base. Buying a failing business can be less time consuming than having to start a company from scratch with the absence of those features. Reworking takes less time than initial creation, and business records will help to show practices that already haven’t worked for your existing company.
Knowing what hasn’t worked for this business is just as valuable as identifying what has, as you can start to develop new marketing strategies, avoiding techniques you know don’t work. Records of your conversion funnel mean that errors can be identified, and your new proposals for a product or advertising changes will be better informed than the last.
Disadvantages of buying a failing business
Sometimes businesses can start to fail because of a bad reputation, and this is harder to shake to begin to generate profit. Even a rebrand won’t always stop spited customers from finding your new social media profiles to leave bad reviews about an experience. No amount of marketing budget can silence scorned clients, so this is a problem that can linger.
There are also no guarantees that even a new business model will help to generate profit for a failing business. Sometimes a bad business is simply a bad business, whether that’s because of inefficient employees or inferior products, and there is the possibility that money you spent purchasing the company could be entirely wasted.
While failing businesses are cheaper to purchase in the beginning, they can be more expensive to fix than it would have been to buy a successful business from the start. Having to remake products of inferior quality, or hire better-experienced staff deals a considerable blow to your budget.
It is down to you to decide whether or not the risk is greater with a failing business than starting a new one from the beginning. After all, perseverance with a failing business worked for Steve Jobs. Jobs returned to Apple in 1997 after quitting in 1985, and he had to revitalise the entire brand on his return, bringing it back from the brink of bankruptcy. That turned out pretty well!
Purchasing any business is risky, but buying a failing company isn’t always something to be afraid of. Identifying flaws in company practices, and errors in the conversion funnel that are stopping profit can be precious information to turn a failing business into a success.
