Owning and running a business of any kind is always a complex and potentially risky undertaking. The painful truth is that no matter what kind of business you have or how robust it may seem, external and internal factors can combine to bring it to its knees – from global pandemics and rising tariffs to geopolitical unrest or a sudden market downturn.
If your business does become distressed for any reason, there’s no denying the stress and anxiety this situation can cause. However, the good news is that you have a few options available to you.
Depending on the severity of your company’s problems, you may decide to ride out the storm and hope for things to improve, or you might opt to sell off parts of your business to generate some additional funds and free up resources. Alternatively, you may decide to sell the company entirely and start again afresh.
In this article, we’ll share top tips and advice on selling a distressed business to help you achieve a suitable return on your investment and, hopefully, make it a little easier to close that chapter of your life.
But first things first – how do you know when your business is becoming distressed? Let’s explore those all-important warning signs.
Red flags to look out for
If you’re worried that your company is experiencing some serious issues and entering a state of distress, these are some of the indictors to be aware of.
- Growing debt
- Operational struggles
- Cash flow problems
- A shrinking customer base
- Declining revenue and profits
If your business is exhibiting some or all of these ‘symptoms’ of distress, then it’s vital that you act as soon as possible. Ignoring or failing to address these problems for too long could result in your company becoming insolvent.
If this happens, you will most likely have to go into administration as, while a distressed business has the potential to find a buyer, an insolvent one has few options.
How to sell your distressed business
While some periods of difficulty may come to an end and result in improved business, there may come a time when it becomes clear that your company is not going to weather this storm.
When this happens, you can take one of several different avenues, depending on how distressed your business is.
1. You can put it on the market
If your business is troubled but not in a truly dire financial state, you can put it up for sale just as you would any other business. To help you find the right buyer, you may wish to hire the services of a reliable and experienced business broker, who can assist you with every aspect of the sale.
They can find and verify potential buyers, create a bespoke marketing pack for your business, and help smooth the negotiations and due diligence process.
2. You can sell off some assets
If you don’t want to sell the entire business but you need to generate some revenue, you could sell off some assets. This could range from valuable equipment to a portion of your product inventory. You can even sell intellectual property (IP) if this would be the best way of generating value.
3. You can explore the option of an MBO
If the business is still capable of being resurrected but you’d rather cut your losses and move on, you could think about a management buyout (MBO).
A management buyout is precisely what it says on the tin – the management team steps in and buys out the owner. They then become responsible for the business.
This can be a complicated solution, but it also has its benefits, particularly for employees, who will not be subjected to new owners and a period of potentially tumultuous transition.
Top tips to help you sell
If you’ve made the tough decision to sell your business and let the new owners see if they can bring it back to life, we’ve compiled some top tips to help you get the best possible deal for your circumstances.
1. Make the most of what you’ve got
In order to appear as attractive as possible to prospective buyers, it’s important that you emphasise the positive aspects of your business. This means highlighting any valuable assets you have that can prove useful to the new owners after the sale and help them bring the business back to profitability.
These assets could consist of equipment, as we’ve already mentioned above, or unique products you’ve created, or potentially even land. Whatever your valuable assets are, make sure they stand out to interested buyers to ensure the best chance of a deal.
2. Get a valuation done
Having your business valued is a crucial part of the M&A process – and, again, this is where business brokers can come in handy, as they can conduct the valuation themselves using a variety of methods.
One of the good things about having your distressed business valued is that, while a valuation will reveal your current cash flow problems, it can also highlight potential areas of value and growth for buyers, such as the value of those assets already mentioned.
Finally, having a thorough and accurate valuation carried out is a good way to start off o the right foot with prospective buyers. Openness and honesty are vital for selling any business but particularly one in distress.
3. Be transparent and fair – but don’t be a pushover
Once you have an interested buyer lined up, you need to ensure that you are fair, flexible and transparent in your dealings with them.
Make sure you have all your financial records prepared so you can show them what went wrong – but also how much revenue your business used to generate in happier times. This can be a good indicator of how profitable your business could be again in future.
If you reach the due diligence stage, you will also need to show them your other significant documentation, from employee contracts to leases and your company’s licenses.
Being upfront with your buyer about why your business failed and what you did to try and remedy the situation is important. However, you should also ask them to be upfront with you about why they want to buy your business and what they can bring to it.
It’s crucial to remember that, just because someone is interested, that doesn’t mean they are the ideal buyer. In fact, there could even be the potential for an unscrupulous buyer to try and take advantage of your circumstances to try and get a better deal. As a result, depending on your situation, it may be worth taking more time to sell and holding out for someone who has more to offer your business.
Hire a business broker to take the weight off your shoulders
Selling a distressed business can be a complex and daunting affair, not to mention highly stressful, as you will have a strong emotional connection to the company.
To take the weight off your shoulders and remove a lot of that stress, it could be worth your while to hire a business broker to help you sell your company. They can handle every aspect of the sale, leaving you free to compose yourself, mentally and emotionally rebuild, and focus on laying the groundwork for your next chapter.
Here at Harris Acquire, we have years of experience in selling businesses of every shape, size and status. We’d be more than happy to assist you with selling your company, making the transaction as hassle-free as possible.
To find out more about how we can be of service, don’t hesitate to give us a call on 01926 757100 or send an email to Hello@harrisacquire.com.
