Accepting that your business is failing is always a difficult thing to do. You may have seen both good and bad times, thrown your full weight behind your ideas and strategies, and pulled out all the stops to avoid such a drastic decision, but unfortunately, nothing has been able to pull you back from the brink.
There are many reasons why your business might be failing, from rapidly changing markets to aggressive competition, and each warrants a detailed analysis. This is because, wherever possible, selling your business when it is losing money should be a last resort. If you can, you should always try and weather one last storm. However, if your hard work and effort is getting you nowhere fast, sometimes the only thing left to do is call it a day and decide on what to do next.
If this is where you find yourself on your entrepreneurial journey, you may be thinking of liquidation or even bankruptcy. However, in many cases, selling a failing business is also a possibility and, just as there are many reasons why your business might be failing, there are also many reasons why buyers may be interested in purchasing your operation. Here then, we take a look at how best to sell a failing business and recoup some of your investment.
Getting a Failing Business on the Market
Getting a failing business market ready is much the same as if you were advertising a profitable business. However, there are some specific considerations worth highlighting that will help you through the sales process.
Clear Litigation and Large Debts
This is a crucial first step on your way to selling your failing business. Naturally, if there are any outstanding legal issues linked to your business, then most buyers will give you a wide berth. Clear up any litigation as a priority and then move onto reducing any debts. It is true that failing businesses are sold with debts, but the more you clear, the stronger your hand in negotiating a final price.
Identify Why Buyers Might be Interested
Identify the reasons buyers might be interested in purchasing a failing business will allow you to tailor your advert and highlight potential areas for a turn-around. Reasons buyers might consider your business include:
- Incorporating your business into their own existing business
- Acquiring assets such as your customer base, shop location, website, etc.
- Restructuring your business and turning it around to make a profit
- Buying the business with more capital and carrying the loss until it becomes profitable
- Buying your business to offset tax obligations
If you can identify one or more of these avenues, you stand a better chance of positioning your business successfully within a competitive market.
Be Honest and Open
At this stage, being open and honest as to the current state of your business, any future challenges your business may face, and any obligations still to be fulfilled is critical. You want to establish trust with potential buyers to ensure everyone is on the same page. Include details regarding your revenue and be sure to highlight your losses during the period that your business has been struggling. Really, there’s no point in sugar coating the issues your business faces as they will only be shown for what they are later in the process.
Consider Separating Assets
If you are having difficulties selling a failing business as a whole, another option is to split your assets and sell them on separately. This can include any buildings and premises’, equipment and technology, inventory and products, customer base, and even your knowledge, experience or ideas. In some cases, separating your assets and selling them individually is merely a matter of finding the right platform. In others, you may need to reach out to competitors, other business owners, and other unexplored avenues to offload individual items.
As with any business sale, patience is an important part of the process. In particular, when selling a failing business, your pool of potential buyers is usually significantly smaller than if you were selling a profitable one. Subsequently, enquiries may come at a slower pace than normal, and you will need to be patient in order to wait for the right deal. Additionally, buyers are likely to take longer during the due diligence phase of the sales process as they will want to work out the details of any potential restructure.
Recognising that you are not going to get the best price for your failing business is a sad truth that you must accept. However, if you aim to highlight future opportunities and untapped potential, you may be able to maximise any returns from the sale. Finally, depending on your area of operation, you may be able to sell smaller parts of your business and hibernate the rest with a view to resurrecting it when the market or your cash flow improves. In the end, whichever direction you decide upon, remember that a failing business is not the end of the world and your next new venture might be just around the corner.