Business with limited operating history

November 26, 2021

by a searcher in Toronto, ON, Canada

I'm looking at a business in the food manufacturing space, the majority of their sales come from their own retail locations. I'm liking what I see in this business, but one thing that I'm mulling over is the company's limited operating history. It has been operating for 3 years. The revenues have been stable/growing in that time, and company has been profitable each year. How concerned should I be, and what can I do to ensure that the business is durable?

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Reply by a searcher
in Galena, IL 61036, USA

I feel that standard questions need to be asked not so much about their short history, but of their potential reliance on a customer owned by the people trying to sell you this business. Could the business survive without this customer? What contracts are in place to stop the seller from taking their business elsewhere, and potentially setting up another supplier to supply themselves, as they've done in this case? I'd be interested in the reasons they initially set up their self-supplying entity (what issues they faced in their supply chain, how costs were potentially saved) and what's different now, in that they want to sell and go back to relying on an external supplier.

Side note - how well are they vetting you as a potential operator? If they're planning on relying on you to be their supplier, I would hope they have confidence in your ability to maintain the supplies they need.

Good luck!

Reply by a searcher
from Carleton College in Leesburg, VA, USA

I can’t help either but I am enamored of a not dissimilar business. It has been operating for decades, but only as an integrated program within a larger company. The company sold the rest of its business off less than two years ago, so the financials only go back to the spin-off. But there are good long-term customers.

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