Key Consideration for Selling a Distressed Business

Trying to market a business as a desirable acquisition while it is in decline can be difficult, however, it is not impossible. So what are the key considerations if your company has reached a point of insolvency, or if you believe that insolvency is inevitable at this stage? Under these conditions how could you sell your business?

Sellers of distressed businesses must focus on presenting their business in a way that encourages buyers to identify value while also being open about the causes of distress.

Here are some techniques to use in less than ideal circumstances when selling a company.

Identifying Synergies:

Identifying synergies will help the buyer understand how the business will perform if absorbed or merged with another business. As a standalone, the business is failing but will it thrive under the new circumstances? Will it be profitable to the new owners or will it be a loss incurring enterprise?  Identifying possible scenarios will help the seller figure out various deal structures & pricing figures.

Focus on the Strengths:

Being open about all aspects is crucial in a distressed sale, however, you can also focus on the positive aspects of your business and highlight them to the buyer. Your business might be well established within its trade sector. It might have a good standing within its local community, holding a sentimental value to its customer base that has been built over the years.

For instance, despite being in distress, your business may still have valuable assets such as a highly-skilled workforce. Highlighting this strength can help the buyer see the value that remains in your business.

Your Business Should be Priced Correctly:

Pricing your business correctly is an important factor and why some negotiations fall through at this phase. While it is important to not undervalue your business, overpricing will not work in your favor.  Expect a buyer to do his due diligence; they will know the real value of the business.

A Broker’s Opinion of Value along with a bank appraisal will help you in identifying an accurate value of your business.

Get Your Financials in Order:

Another important aspect of selling a distressed business is to get the finances of the business in order. This includes accurate cash balances as a buyer would want a functioning business with up to date and accurate books.

Make Sure Your Business is Running Smoothly:

This is a very important consideration, as oftentimes sellers get so busy with the sale of the business, that they overlook the day to day running of the business. Keeping the business up and running even though distressed shows the buyer the potential. Staying attentive to your business during the process also keeps up the morale of your employees who are important assets to the business.

Though the sale of a distressed business is challenging, focusing on these key areas will help in achieving the desired outcome.

If you want more information regarding the sale of an insolvent or distressed business, please contact Sunbelt Business Brokers of Roanoke & Lynchburg at [email protected] or give us a call at (540) 777-1585.