Financing options for companies with declining earnings
June 12, 2024
by a searcher in Cincinnati, OH, USA
I'm looking at a company with a strong history, but burnt out owner. With the stable revenue, I believe there is opportunity for increased profitability/earnings. Due to the recent declining earnings, trying to decide if this opportunity is worth using bank financing or if I should approach the buyer with seller financing for a variety of reasons. Any thoughts or suggestions regarding financing and/or valuation?
'20 "21 "22 "23
Revenue: $9.1M $8.9M $10.6M $9.9M
COGS: $6.2M $6.2M $7.7M $7.2M
NET INC: $390K $315K $200K $120K
EBITDA: $565K $465K $350K $260K
'20 '21 '22 '23
AR: $1.25M $950K $810K $810K
INV: $275K $500K $600K $360K
EQUIP: $1.2M $1.25M $1.3M $1.3M
AP: $110K $195K $195K $110K
ACCR'D: $505K $485K $580K $500K
from INSEAD in France
Inflation could have driven up COGS which would mean price increases have not followed (easy fix though careful with customer sensitivity)
COGS here also only account for about ~200k of decrease in EBITDA
Which leaves another ~105k in increase in expenses that affected EBITDA any more information on what that is about?
Hypothesis given minimal info is that owner "over-hired" (100k should be between 1-4 additional employees) from###-###-#### given the ~1.7m increase in revenue during that time, and when business cooled down in 23, employees were still getting paid obviously (another easy fix if you feel like they could be let go).
Conclusion:
Seems like it's still a solid business, affected by inflation like any other business and over-hired because business was doing well.
Goodluck!
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA