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How to buy a business that is making a loss?

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Kokaka

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Hi all.
So just now, I got a fantastic opportunity to buy a beauty clinic and incorporate it into what will become a chain of clinics.
Long story short, 2 doctors bought the clinic, one got sick and stopped working. The other didnt have time to work sufficient to make the place make a profit. He is also not an entrepreneur so even better.
They have just been open for a year and has had a turnover of 22k and a result of -25k. So a loss of 3k.

Normally as I understand, you value the cash flow when you buy a business but how do you do it in a case like this?
Just buy the inventory?
Asking price is 60k.

I spoke to the broker and the current doctor want to continue to work part time in the clinic but with an entrepreneur to run it. Location and shop is both fantastic so the potential is insane.

What I want to do is just pay for his expenses that he put out and not a dollar more, keep him working 50% in the clinic and fill up with machines and staff and make it a proper beauty clinic. Use the markering machine of my other business to jump start this one.
I have also dreamt of having a doctor working with me since it will help with alot of beurocraty for my other clinics since I dont have a doctor onboard yet who can order some of the products I need.

Any ideas?
 

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Johnny boy

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Start the negotiations at the cash flow valuation (-3k times x multiple = negative number). Tell them it's worth the negative number but you'll take it for 0$
 

Kokaka

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Start the negotiations at the cash flow valuation (-3k times x multiple = negative number). Tell them it's worth the negative number but you'll take it for 0$
Yes this is what I have been thinking. Cashflow 0 + expenses for furniture and decoration. Should land on 10k.
 

Kokaka

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As long as you know what you are doing. I made a lot of money buying apartments that were losing money. There is no shortage of poor management.
Yes I think so. Before the doctors, there was another beauty clinic there for 25 years but the former owner retired.
So they have 25 years worth of customers and the clinic is almost 1600 square feet.
Too big for 1 doctor to work 4 hours a week in there.
This can be good
 

robertwills

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Yes I think so. Before the doctors, there was another beauty clinic there for 25 years but the former owner retired.
So they have 25 years worth of customers and the clinic is almost 1600 square feet.
Too big for 1 doctor to work 4 hours a week in there.
This can be good
What does the doctor do at the beauty clinic?

I know someone who bought a small business and it worked out well. However, there were some small liabilities that were not known at the time of the sale. Thankfully these were small. Personally I would retain the services of an attorney who has experience in helping clients buy and sell businesses. You want to be sure there are no issues that you may not be aware of.
 

Stargazer

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The loss is greater than $3k because they have not factored in their 'salary' which you would have to do if one of them stayed on and worked part time.

Pretend you bought it for nothing and both left. You have to get a replacement. So what would that figure be and factor that in to what the business made - or in this case lost.

The $60k is because they have spoken to a broker. Ignore it.

They already regret their decision to start. I bet they have signed a 15 year lease with a 5 year break clause or something like that too.

The $0 mentioned above is where I would start too.

Dan

I am presuming the salary was not factored in as you are in Sweden I believe
 

Kokaka

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What does the doctor do at the beauty clinic?

I know someone who bought a small business and it worked out well. However, there were some small liabilities that were not known at the time of the sale. Thankfully these were small. Personally I would retain the services of an attorney who has experience in helping clients buy and sell businesses. You want to be sure there are no issues that you may not be aware of.
Here where I live. Only doctors, dentists and nurses can do botox and filler. Before, everyone could do it. This has driven up the demand very high for a small group of people.
They thought they would buy the clinic, work there part time and make big profit. Turned out it was not that simple
 

Kokaka

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The loss is greater than $3k because they have not factored in their 'salary' which you would have to do if one of them stayed on and worked part time.

Pretend you bought it for nothing and both left. You have to get a replacement. So what would that figure be and factor that in to what the business made - or in this case lost.

The $60k is because they have spoken to a broker. Ignore it.

They already regret their decision to start. I bet they have signed a 15 year lease with a 5 year break clause or something like that too.

The $0 mentioned above is where I would start too.

Dan

I am presuming the salary was not factored in as you are in Sweden I believe
Thats correct. Didnt think about the lease so ghey would probably just want to give it up. I can offer some toys and a full client base for him and if we split 50/50 from the profit he makes. I have the clinic etc. He just shows up, plus he can sign documents for my other clinics. It will be a win win.
Edit: Looking at the numbers, they have nit lifted 1 cent in salary. Thanks for the input
 
Last edited:

BizyDad

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@BizyDad has experience when it comes to buying and selling businesses. Tagging.

Thats correct. Didnt think about the lease so ghey would probably just want to give it up. I can offer some toys and a full client base for him and if we split 50/50 from the profit he makes. I have the clinic etc. He just shows up, plus he can sign documents for my other clinics. It will be a win win.
Edit: Looking at the numbers, they have nit lifted 1 cent in salary. Thanks for the input
I was in the middle of typing a response that suggested structuring a deal that the doctor would view as a revenue share win/win, then I saw Kokaka got there on his own. Don't have anything to add.
 

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thechosen1

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Hi all.
So just now, I got a fantastic opportunity to buy a beauty clinic and incorporate it into what will become a chain of clinics.
Long story short, 2 doctors bought the clinic, one got sick and stopped working. The other didnt have time to work sufficient to make the place make a profit. He is also not an entrepreneur so even better.
They have just been open for a year and has had a turnover of 22k and a result of -25k. So a loss of 3k.

Normally as I understand, you value the cash flow when you buy a business but how do you do it in a case like this?
Just buy the inventory?
Asking price is 60k.

I spoke to the broker and the current doctor want to continue to work part time in the clinic but with an entrepreneur to run it. Location and shop is both fantastic so the potential is insane.

What I want to do is just pay for his expenses that he put out and not a dollar more, keep him working 50% in the clinic and fill up with machines and staff and make it a proper beauty clinic. Use the markering machine of my other business to jump start this one.
I have also dreamt of having a doctor working with me since it will help with alot of beurocraty for my other clinics since I dont have a doctor onboard yet who can order some of the products I need.

Any ideas?
I would approach it like Carl Icahn.

Find out what assets are included in the sale, pay less than what you can sell the assets for, buy the business, sell everything, move along.

The business is worthless as far as cash flow and business value goes if it is not making a profit.

The inventory, furniture, and buildings have value. Try to buy for less than that.

Then, if you decide you want to run the business and try to make it profitable, at least you got it for a good price where you could sell the "stuff" to get your money back.
 

robertwills

Bronze Contributor
Speedway Pass
Sep 9, 2020
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238
93
Atlanta, GA
I would approach it like Carl Icahn.

Find out what assets are included in the sale, pay less than what you can sell the assets for, buy the business, sell everything, move along.

The business is worthless as far as cash flow and business value goes if it is not making a profit.

The inventory, furniture, and buildings have value. Try to buy for less than that.

Then, if you decide you want to run the business and try to make it profitable, at least you got it for a good price where you could sell the "stuff" to get your money back.
Have you ever sold inventory and used furniture? They may have to pay to have the furniture moved out. If they can sell it they won't get much. The sale of inventory is typically like 10% or less of the original cost.
 

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