Valuing a Negative Cash Flow Business

I purchase companies. Improving businesses, saving jobs and allowing people to reach their highest potential is one of my favorite things to do. This falls totally in line with what I can’t stand which is waste.

 

Since 2014 when my team and I started doing this more actively, I’ve looked at, considered and or analyzed thousands of companies. One of the questions that I had when looking at a company recently is…

 

How does one value a company that is losing money?

 

The more troublesome thing is when a company is losing money but it’s represented as making millions.

Right now I am facing this exact situation and I am leaning towards it might be worth nothing, or less than nothing, but what is a fair offer?

 

Receivables are always nice to see (though hurts cash conversion) but I’ve never seen 100% collections from any company.

What is the proper amount to discount receivables.

 

One of my partners would say, no one is happy when I bring a signed contract back, but it is still a signed contract and the deal got done. That always resonates with me, getting deals done that are fair usually means neither side is ecstatic.

 

There is so much art involved in these deals and as a result, we need to see what type of structure and terms are most important to the other side.

 

How do you value a company the is losing money, but might have potential?

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