Comments on: Purchasing an Underperforming Business

By: Applying Business Plan Advice From the Experts (Follow-Up Post) | Jazz Pixie

Tue, 18 Oct 2011 00:49:18 +0000

[...] Meneguzzi, A. (2011). Purchasing an Underperforming Business. Retrieved 2011, from Business Plan Help & Small Business Articles: http://articles.bplans.com/buying-a-business/purchasing-an-underperforming-business/19 [...]

By: Hill & Block Capital Partners

Hill & Block Capital Partners — Thu, 04 Nov 2010 10:18:53 +0000

Normally we advise our clients to avoid those “performance based payments”. In reality, very few will be able and at worst WILLING to honor those “perfomance based” obligations say 2 to 3 years down the line. When you acquire an underperforming business, you do so with eyes wide open. Business people are either rewarded (through profit) for calculated risk taking or be punished for risk taking (through losses).

In practice, as a business person, the agreed purchase price is the first junction of either profit or loss.

Its true for both the seller and the purchaser.

By: Christine Sutherland

Christine Sutherland — Mon, 05 Jul 2010 03:51:15 +0000

I would add a cautionary word about contingency contracts that seek to protect the buyer or seller against over or under valuation. When the crunch comes, it may be that neither party has capacity to pay and the process of litigation could cost more than the amount sought in compensation.

I would not purchase a business on these terms unless that purchase was part of a wider strategy and I could take the hit of a potential loss.

Once a business begins to slide it can be extremely difficult to win people back, or to find new customers within the framework of negative preconceptions in the market.

It may seem harsh, but my policy is not to touch a business which is over-valued for current performance. I also recommend assessing any income projections in the context of altered economic and technological environments. You don’t need to guess these things because you can examine whole industries historically through times of past recession. You can also look at current research or studies by peak bodies or within academia to predict future trends.