Selling a Distressed Business Versus a Profitable One – The Difference
If you are a business owner that is struggling to stay afloat, BusinessesForSale.com understands that this is a stressful and challenging time in your life. To support you in this process and offer guidance on the best way forward, we’ll offer helpful tips on how to sell a business that is losing money.
Although businesses are overcoming challenges brought on by the pandemic, the war in Ukraine, and rising inflation and living costs, failing businesses will always be a part of the economy.
Many businesses in the United Kingdom are struggling financially, and approximately 562,500 SMEs were significantly distressed in the last quarter of 2021.
So, can you sell a business that is not profitable? The answer is yes. Acquiring a distressed business is a common transaction, and there are buyers who target struggling businesses.
The selling process for a failing and profitable business will have similarities, but there are certain considerations you need to keep in mind if you are selling a business that is unprofitable. Before we begin, you may find it useful to have a quick read through our selling guide for more details on how to prepare your business for sale.
Perhaps the most significant difference between selling a struggling business versus a profitable one is time and effort. Time is crucial, especially if your business has not reached insolvency yet. Buyers often wait for a business to go into administration – resulting in a lower valuation, so it is important to maintain your book-keeping, remain committed and seek professional support from a specialist.
Find out more: Need to sell an insolvent business? Advertise your business for sale and find the right buyer.
Tips to Help You Sell Your Unprofitable Business
Know why your business is failing
If you are selling a limited company with debt, but you do not know why it is failing – and you have not attempted to rectify this issue - then you cannot expect to find a willing buyer.
There are many reasons why a business can fail: poor management, lack of capital, the death of an integral stakeholder, an unforeseen event. It is crucial that you are transparent about these reasons and take responsibility for them. This will allow the buyer to make an informed decision, and identify areas that need assistance, attention, or restructuring.
Understand and emphasise the value in your assets
Depending on the type of business you have, your assets will be the value drivers. For example, a tech company that is failing might have value in its software, SEO strategy, customers, patents, and trademarks. A laundromat that is failing will have washing machines and dryers, and perhaps a transferable lease.
These are all assets that are expensive to obtain and nurture in the first instance, so they will increase the value of your failing business for a buyer who is trying to avoid starting something from scratch.
Valuing your distressed business
There is value in a failing business, and it is important to emphasise this value – albeit pragmatically and honestly. A popular method of valuing a failing business is to estimate profitable future earnings (like a Discounted Cash Flow model). While your business may be distressed now, it can become profitable under the right management or through a cash injection.
As we’ve indicated, assets are a crucial part of selling an unprofitable business, so you could consider a valuation method that is asset based.
Valuing a failing business can be a stressful process. To support you in this process, BusinessesForSale.com offers a free, online valuation tool that provides a realistic and trustworthy valuation of your business.
Be transparent about your financial health
When it comes time to present financial details to buyers or investors, it is crucial to be transparent about the current state of your business. The truth is that it is failing, so buyers will be cautious. After all, they are taking a risk by acquiring a distressed business.
You should present potential buyers with factual information (customer traffic, receipts, reports) and demonstrate that the business was profitable before.
Ensure that you are honest about why your business is failing and demonstrate that you have made an effort to overcome these challenges. A buyer might identify that they have the ability or financial capacity to rectify these issues.
Maintain a healthy relationship with the buyer
As we previously mentioned, a buyer or investor will be taking a risk buying a failing company, so it is important to put yourself in their shoes.
You are likely tired and overwhelmed, but it is important to remain patient with a buyer and convince them that your business can excel under the right owner. Nurturing a relationship based on respect and patience can also help you in the negotiating stage of the sale.
Negotiating the worth of your failing business
There is room to negotiate the worth of your unprofitable business. A buyer will conduct extensive due diligence to understand – from their perspective – why your business has failed, even after you’ve presented your findings. However, even though your business is failing, you should not undervalue yourself.
To ensure that you have the best possible chance of negotiating the sale of your failing business, consider the following:
- Understand what you want or need out of selling your failing business
- Conduct research on the buyer
- Emphasise the value in your assets and future potential
- Cater to the buyer, and ensure they cater to you
- If you can, know when to walk away
Getting support from a broker to sell your distressed business
You don’t have to sell your failing business on your own. Selling an unprofitable business requires effort, research, and negotiation tactics that you may not be familiar with. Brokers who specialise in selling distressed businesses have developed networks, skills and connections that will help you seal the deal.
BusinessesForSale.com has a network of specialised brokers that can help you sell your failing business, taking a lot of pressure off your shoulders so you can focus on keeping your head above water.
Find out more: Want to know how much your business is worth? Get a free estimate valuation.
How BusinessesForSale.com Can Help You
We have been supporting sellers for more than 20 years, so we understand that selling a failing business can be an emotional and exhausting challenge.
This is not an easy process, so applying these steps listed above can help alleviate some of the pressure you are facing.
BusinessesForSale.com wants to ensure that your business is exposed to relevant buyers, so you can list your business under the ‘distressed’ and ‘quick sale’ categories to ensure your business is targeted by buyers actively seeking failing businesses.
If you’d like more support or advice on the selling process, you can contact our dedicated team. While the finish line might seem far away, it is important to remember that there will always be a helping hand along the way.
