Every business owner hopes to develop a successful company that will remain relevant for decades. However, the ills of running a business sometimes lead it into an irredeemable crash. Hence, they fail to generate yearly profits.
When business owners and entrepreneurs find it hard to turn this situation around, they usually count their losses and decide to sell them. Some sell a failing business, hoping that the buyer will have all the expertise and resources to turn it around.
There is a market for selling a business that's losing money, but it's important to know some strategies to execute it effectively.
Selling a Distressed Business Versus a Profitable One — The Difference
Selling a business you have invested so much in is a hard decision. It doesn't matter if it's a profitable or distressed business. Whatever the reason you want to sell your business, know that sometimes it’s the best decision. Also, know that buying and selling distressed businesses is a common transaction.
The general conception is that a profitable business is easier to sell. This may be true for some businesses, but it is not always the case. It boils down to the business orientation of the buyer and their plans for your business. Also, going through our selling a business guide will enlighten you more about making a profitable sale.
Most successful business owners will tell you to sell while your business is doing its best. Most people sell a profitable business when they think it's time to cash or retire. It is wise to choose to maximize your income when your firm is at its peak.
On the other hand, selling a failing business is primarily to avoid bankruptcy or the total disappearance of the company. It is noteworthy that time is another crucial factor because the longer you leave a failing business, the harder it will be to sell.
Before considering selling your struggling business, it's good to know why businesses fail. That way, you can know what to avoid in your next business venture (if you have one).
Why Do Businesses Fail?
Several circumstances can cause business failure. Its products, management, and even its surroundings and market are examples of this. However, commercial, financial, and legal issues are the most common.
Inability to manage these issues adequately can be why you're searching for how to sell an unprofitable business. It can also result in your business becoming totally insolvent.
Find out more: Need to sell an insolvent business? Advertise your business for sale and find the right buyer.
Top Tips to Help You Sell Your Failing Business
Know Why Your Business is Losing Money
This should be one of the first issues to address, especially if you plan on selling a limited company in debt. Hardly would an investor want to buy an insolvent business without ensuring that the owner has determined the source of failure.
In doing this, there are some basic questions to ask:
- Was it a catastrophic occurrence?
- Was it a result of poor financial decisions?
- What went wrong, exactly?
- What could have been done better?
- What shouldn't have been done at all?
You should not try to sell your unprofitable business if you have not answered these questions. It would be unwise for anyone to buy the company in this situation.
The Value in Your Assets
It's only natural for an investor to want to know exactly how much a failing business is worth before buying.
A business's worth can be determined in ways other than its profitability. Vital contracts and cutting-edge technology are a few factors that can boost the value of the business to potential buyers.
Many investors choose to buy businesses based on their projected profit rather than their existing profits. In addition, a major corporation may purchase a smaller business and use its resources to produce a profit where the original owners lacked the necessary skills.
Physical assets may exist in several businesses and may be valuable to a new owner. A failing restaurant, for example, would still have assets such as a well-equipped kitchen, dining room, utensils, licenses, signage, and a transferable lease.
So, if you are selling a restaurant, these are things you should point out to them. In some cases, buying a failing restaurant is more profitable for a buyer than starting from scratch.
For a tech company, assets like a website domain, an IP address, and an established customer list will give your business the edge it needs to be sold. These are assets that the buyer would consider valuable.
The most critical thing is to ensure you’re honest in your valuation. Using ValueRight will give you a trustworthy and pragmatic valuation of your company's worth.
Be Transparent About Your Financials
Transparency will earn your investor’s trust when you provide accurate business information. As much as you want to highlight the positive aspects of the business, you also need to tell them about the negative aspects of the firm.
Allow them to hear it directly from you, as you could face legal action if you attempt to cover up important information that the buyer needs to know. You must be transparent and accountable from the start.
Maintain a Healthy Relationship With Your Buyer
Be calm, friendly, patient, and professional throughout the deal. Don't expect to close a fair deal simply because you believe your company is worth it from your perspective.
In the real world, worth is determined by quantifiable criteria rather than the owner's estimation. Get a professional to help you highlight the business factors that could cause the value to increase after the sale. Hand this over to your prospective buyer.
Negotiating The Sale Of Your Failing Business
Negotiation is all about understanding the path to an agreement. One of the most common blunders made by business entrepreneurs is undervaluing their businesses. Some even sell out of desperation to recoup some of the money invested.
However, a memorandum of understanding is frequently required when attempting to sell a failed firm. This is the legal document that binds the owner to the buyer. Hence, it gives them the confidence to negotiate from a position of strength.
Getting Support From A Broker To Sell Your Distressed Business
A business broker will help you build a strong exit strategy that bypasses costly errors. They will assess your business’s value and advise you on maximizing earnings to increase your profitability.
They will also handle the marketing, the sale, and the transition to the new owner.
Also, based on several years of experience, they likely have a network of people to call when a business is up for sale. BusinessesForSale.com can connect you with a trustworthy broker who can help you find the best deal for your failing business.
Find out more: Want to know how much your business is worth? Get a free estimate valuation.
How BusinessesForSale.com Can Help You
Business failure or loss is no entrepreneur's plan, but it happens even to the best of us. Accepting that you will not get the greatest price for your failing business is a terrible reality you must face. However, you want to do it the right way. By following the techniques outlined above, you can attain speedy results.
Listing your business on BusinessForSale.com under the “distressed” or “quick sale” category will expose your business to relevant buyers, ensuring that you connect with buyers who are targeting unprofitable listings.
If you’d like more insights or clarity on selling a failing business, or you’d like to speak to a dedicated member of our team, feel free to contact us.