Most people considering buying a business tend to seek out successful and growing companies. Buy a growing company, the logic goes, and it is likely to continue to grow well into the future. Often, there is a lot of truth to this logic. But while buying a strong business is a good strategy, buying a declining business can bring its own benefits.

In this article, we discuss nine reasons you might want to consider buying a declining business. Buying a declining business can provide you with:

• Existing business infrastructure
• Better price
• More-favorable deal terms
• Potential future growth
• Leverage in negotiations
• Complementary products and services
• Intellectual property or patents
• Brand recognition
• Access to talent

Lastly, we will discuss several things you should consider before buying any business.

Related Article: How to Maximize Growth After Acquisition

9 Reasons to Buy a Declining Business

Buying a declining business might feel counterintuitive. After all, most people interested in buying a business are doing so because they want to own an asset that is relatively easy to manage, continues to grow into the future, and provides a large return on investment. At first glance, a declining business hardly promises to be easy to manage or provide a healthy return on investment.

For the right buyer, however, purchasing a declining business can be a worthwhile investment. Like buying a rundown house and fixing it up into a gem, declining businesses can turn out to be smart purchases. On closer look, there are a number of compelling reasons why someone could be interested in buying a declining business.

“For the right buyer, purchasing a declining business can be a worthwhile investment.”

1. Existing Business Infrastructure

Starting a business from scratch is an uphill battle. And while the process and payoff can be incredibly rewarding, it does require a ton of hard work and effort. One of the big advantages of buying any business is that the processes, systems, and business infrastructure are already set up and running. This shortcuts the amount of work required and allows you to move ahead more quickly.

This remains true when buying a business in decline. Many businesses with declining sales still have a solid infrastructure in place. This could include product sourcing and development methods, fulfillment and shipping partners, a marketing strategy, a sales team, internal standard operating procedures, and more.

Each of these processes can take a ton of time and effort to get set up and running. While some of them may need changing (for example, a declining business may have ineffective marketing strategies), you at least have a solid place from which to start. This saves you time and effort that you can then use to focus on driving growth.

“One of the most compelling reasons to buy a declining business is the fact that they often cost less than other businesses.”

2. Better Price

One of the most compelling reasons to buy a declining business is the fact that they often cost less than other businesses. If you are looking to buy a business but have limited resources, you may want to consider a declining business.

Declining businesses are considered much less attractive than growing or healthy businesses. As we mentioned, buyers generally want to purchase a business that they expect to grow into the future. Often, the best way to be assured of future growth is to buy a company that has had strong past growth.

Knowing this, most buyers tend to compete for the strongest businesses. This leaves less interest in declining businesses. With less competition, declining businesses naturally have to lower their price in order to attract interest. For the right buyer, this can provide the opportunity to buy a business at a great price.

3. More-Favorable Deal Terms

The decreased competition associated with a declining business also provides a better opportunity to achieve more-favorable deal terms than when buying a growing or healthy business. This is a potentially huge upside, given that the deal terms you agree to have a big impact on your overall buying and owning experience.

There are many ways to structure an acquisition. You could pay one cash payment up front or finance the acquisition by taking out a business loan or accessing other lines of credit. Or, you could negotiate seller financing terms, under which you pay the seller over a period of time with profits from the business.

Seller financing may be unrealistic for businesses that attract intense competition. A declining business, on the other hand, may open up deal terms that make purchasing the business more attainable than it otherwise would be.

“By buying a declining business at a reduced price and turning it around, you may achieve an even higher ROI than you would if you bought an already-growing company.”

4. Potential Future Growth

Businesses with declining sales still can have room for future growth. If you know how to attract customers and build healthy customer relationships, you have the potential to turn things around and drive future growth. By buying a declining business at a reduced price and turning it around, you may achieve an even higher ROI (return on investment) than you would if you bought an already-growing company.

5. Leverage in Negotiations

The diminished competition associated with a declining business allows you to have more leverage in negotiations with the seller. Given their lack of other serious buyers, they will come to the negotiating table in a weaker position than they would with multiple strong offers.

You can use your strengthened negotiating position to pursue deal terms that meet your needs, lower the sale price, and achieve a smoother acquisition process.

6. Complementary Products and Services

Achieving a high ROI is not the only compelling reason to purchase a company. If you already own a business, it may benefit you to acquire a related business in order to gain access to its range of complementary products or services.

For example, let’s say you run an ecommerce business selling photography tripods, camera bags, and other accessories. You find a photography content website for sale that could act as a powerful lead-generation resource. Even though it is in decline, owning it would still provide a major boost to your current business.

If you already own a business, keep an eye out for declining businesses that could provide you with complementary products and services. While each opportunity may not be worthwhile on its own, it could provide a boost to your current business that justifies the investment.

7. Intellectual Property or Patents

Another common reason to buy a declining business is when it owns valuable intellectual property (IP) or patents. While the business may have declining sales, the patents or IP could be repurposed for another business or function.

In this situation, however, the IP or patents may keep the value of the business high, regardless of declining sales. As a business owner, learn how to recognize these opportunities as you become aware of them.

8. Brand Recognition

If you have identified a target market you want to enter, buying a declining business can provide you with a head start on gaining brand recognition in that market. When you start a business from scratch, you have to fight hard to establish yourself and gain brand recognition. By buying a business, you can piggyback on its already established name.

Of course, you will still need to turn the business around in order to make it a worthwhile investment. Solicit customer feedback to learn customer expectations and strengthen customer relationships over time.

“If you have identified a target market you want to enter, buying a declining business can provide you with a head start on gaining brand recognition in that market.”

9. Access to Talent

Lastly, buying a business, including a declining business, can give you access to top talent. If you identify a business with highly talented employees or employees with specific valuable skill sets, it may be worth it to buy the business just to gain access to the talent.

Of course, you must assess whether the talent is likely to stay on after the business transfers ownership. You don’t want to buy a business to access the talent only to have key employees leave after the sale.

What to Consider when Buying a Business

If you are considering buying any business, whether declining or not, there are several things to consider first. These include your:

• Personal goals
• Budget
• Interests and passions
• Skill set and expertise

Personal goals

For starters, get some clarity on what your goals are. Are you buying a business because you want to grow and sell it or as a steady side project to your 9-to-5 job? Your goals will help shape the type of business that is right for your specific needs. By getting clarity on your goals, you will have a much better idea of whether buying a business is right for you, and if so, what your criteria are.

Budget

If you don’t have a budget yet, take stock of your financial situation to establish how much you can spend on a business. Remember, there are financing options out there, including loans and seller financing. By having a clear budget, you will have a better idea of which businesses to consider and which fall outside your budget range.

“Finding purpose in your work can help you succeed in the long run while enjoying the process along the way.”

Interests and passions

Running a business can require a lot of hard work and dedication, often with no guaranteed financial return. Many entrepreneurs find it much easier to sustain the motivation needed to succeed if they run a business that aligns with their interests and passions. Finding purpose in your work can help you succeed in the long run while enjoying the process along the way.

Skill set and expertise

Lastly, consider your specific skill sets and areas of expertise. By identifying your strengths, you can purchase a business that allows you to capitalize on your expertise and skills. For example, if you are a wizard at content marketing, you may want to consider buying a content website or other business model that relies heavily on these skills.

Conclusion

Most people seek out growing and successful businesses when making an acquisition. While this can be a good strategy, declining businesses shouldn’t be automatically written off. Depending on your goals and needs, buying a declining business can bring a range of unexpected benefits.