Selling a Business in Distress
When selling a business in financial trouble, owners have challenges to face, chief among them is positioning the company to appeal to buyers who will see the business’ potential and pay a fair price. Combined with best practices for putting a business on the market, the following guidelines will help proprietors get the best price and some breathing room during the sale:
- Assess the firm’s rock-bottom value. This means looking at company assets such as real estate, inventory and equipment at liquidation valuations. Consider sales volume, too, and whether another owner would take over smoothly. Since a good customer base is a company’s most valuable asset, place a price tag on client goodwill. The reality is, potential buyers bid based, partly, on the risk involved in receiving dollar amounts greater than the company’s current, rock-bottom value. In this case, fiscal transparency is critical.
- Inform investors and lenders of the intended sale. Keeping stakeholders in the loop generates support, particularly when insiders have some hope of recouping what’s owed them.
- Seek assistance from professionals. Firms experienced in the sale of distressed companies know how to attract the right buyers, and how to negotiate the most favorable terms. Moreover, these agencies allow ”under water” sellers to keep operations going until the transfer of ownership and responsibility is complete.
- Devise a systematic sales strategy and follow it. Key actions include: distributing the company history and background; creating a competitive bidding process; establishing a hard deadline for all offers; and documenting all marketing activities and verbal transactions.
- Market those business features that most attract buyers. According to business analysts, three factors make a distressed firm more saleable: sales volume potential, suitable facilities and a loyal, well-trained staff.
Sales volume potential takes into account a stable, well-established customer base; the possibility of melding the new acquisition with the buyer’s existing operations (e.g. the firm for sale makes candles; the buyer manufactures scented wax); and the potential for sales to increase with improved production processes, business management and effective marketing.
A suitable facility , itself, has value because of its location, physical layout or potential for expansion or renovation.
And finally, a loyal, well-trained staff saves the prospective owner time and money. Some business buyers welcome the opportunity to hone undiscovered talents in people who’ve already proven their worth to the company.
- Create leverage. This can be problematic for companies with financial problems, but measures such as selling off the firm in parts, or altering the negotiating dynamics, help sellers get a fair price, even in a quick sale.
- Auction non-essential assets prior to putting the business on the market. Besides giving the company a "face-lift," selling old inventory, furniture and equipment raises needed cash.
When a business has financial problems, indeed, it becomes more difficult to sell, but there are entrepreneurs who look for just such companies, so even a business with a great deal of debt has value to the right buyer.
The better your company looks, the more you stand to clear on the sale even if the company has seemingly overwhelming financial or other business problems. Remember, there are buyers out there looking for a business with problems. These “fixers” are experts in turning around the fortunes of troubled businesses.
Even your troubled business.