If you’re a business owner trying to prep a struggling business for sale, it can be a daunting and stressful process.
Distressed business sales can be complex, and you want to make sure that your business is as attractive as possible to potential buyers.
If this is you, you’re not alone.
According to the Boston Consulting Group, over 60% of US companies are under financial or operational distress.
With that said, with the right preparation and mindset, you can extract as much value as possible from your distressed business and move on to your next venture.
My goal with this post is to equip you with everything you need to prepare a distressed business for the sale process.
What is a distressed business?
A distressed company is one experiencing financial difficulty or is facing bankruptcy. This can be due to a variety of factors, such as poor management, declining sales, changing market conditions, or ramped up competition.
Distressed businesses may struggle to meet their financial obligations, and may be at risk of going out of business if they are unable to turn their financial situation around.
Here are a handful of signs a business may be in trouble:
Can I sell my business if its not profitable?
While there are no guarantees, the short answer is yes – it is possible to sell a business that is not profitable.
While it may be more difficult to find a buyer for an unprofitable business, there are still potential buyers who may be interested in purchasing a struggling company.
These buyers may see potential in the business and believe that they can turn it around, or they may find the company’s assets attractive (i.e. products or customer relationships). In many situations, it’s possible to get a sales price far beyond the liquidation value and avoid an expensive bankruptcy process.
If you are considering selling a business that is not profitable, it’s important to be realistic about the value of the business and the challenges it is facing. You may need to lower your asking price, and you should be prepared to negotiate with potential buyers to try and come up with a win-win deal.
How do I sell my distressed business? (9 Steps)
If you’ve never sold a business before, I’d also encourage you to check out my checklist on selling a business and exit planning post.
1. Identify the root cause: Before preparing your business to sell, it’s essential that you first get an honest assessment of your present operations. Look at data points and KPIs: everything from profitability and cash flow projections to customer satisfaction ratings.Â
- What drove your once healthy company into this situation?
- Is there any low hanging fruit to improve cash flow or profits?
Understanding the underlying causes of the distress can help you address any issues and make the business more attractive to potential buyers.
2. Consider all your options: In addition to selling the business outright, you may also consider options such as merging with another company, finding an investor, or bringing in a partner.
3. Understand the market conditions: It’s important to have a clear understanding of the current market conditions for businesses in your industry. This will help you set realistic expectations for the sale of your business and ensure that you get the best price possible.
4. Clean up your finances: Before moving forward with a distressed sale, it’s important to get your finances in order. This includes preparing financial statements, reconciling any outstanding debts, and ensuring that your tax returns are up to date.
5. Identify the value of your business: Determine the value of your business by taking into account a variety of factors, including its assets, revenue streams, and customer base. It can be helpful to work with a business valuation expert to get a comprehensive understanding of your business’s value.
Are the distressed business assets worth significant value?
Do all you can to maximize your business value drivers and get exit ready.
6. Get help from small business deal advisors: When selling a distressed business, it can be helpful to have a team of professional advisors on your side.
Small business deal advisors can help you navigate the sale process and identify potential buyers. Although brokers are optional, a minimum, I’d recommend a strong M&A lawyer and accountant.
7. Get your legal affairs in order: Make sure that all of your legal documents are in order and up to date. This includes contracts, leases, and any other legal agreements related to your business.
8. Find prospective buyers: Finding a suitable buyer can take time, but this is the most important step in the process (I’ve created a post to guide you through it).
Look for buyers who have experience in your industry and a track record of successfully turning around struggling businesses. Buyers specifically searching for a struggling business can work as well.
Be transparent with potential buyers about the challenges facing the business and any steps you have taken to address them. If you effectively communicate the challenges and opportunities, it can help build trust and increase your chances of a successful sale.
9. Be open to negotiation: Be prepared to negotiate with potential buyers to ensure that you get the best deal possible for your business.
Remember that the goal is to sell your business for a fair price, so be open to discussing terms and making compromises.
Conclusion
Selling distressed businesses can be a challenging process, but with the right preparation and support, it is possible to get a fair price for your business and get a fresh start.
Remember that selling distressed companies can be a complex and challenging process. As I mentioned above, I highly recommend seeking the guidance of small business deal advisors to help you navigate the process and find prospective buyers.
Good luck.
