Just had one of my consulting clients fax over to me a businesses last three years of tax returns for review before he moved forward on getting an
SBA loan for a business purchase on a $2.2M dollar deal. The deal includes both real estate and the business. After receiving the tax returns the total revenues and the adjusted net income was steadily declining approximately 15%-25% over the last three years.
Lenders don't like declining revenues (neither should business buyers) especially for three years! They may make an exception if revenues start going back up in the current year.
There could be
explainable reasons for the slide in revenues like: the death of the owner (lack of management), loss of a key account (but other accounts have replaced it), or a serious health consideration - these reasons would probably offset the declining revenues and a loan could be justified as long as all the other factors lined up in the deal, (from both seller and buyer).
This particular clients business owner's reason for declining revenue was that, "he was bored and not into the business". My client is now looking at other deals.
Bottom line & if you are selling a business make sure your plan for it, and make sure revenues are either stable or at least growing in the last and/or current year. It will make it less taxing for your buyer to get financing & but most certainly of your getting a better price for your business (and probably the ability to sell it!).•
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