Selling a business is usually an exciting endeavor. You’re right on the precipice of your life’s largest earning event, and all your years of hard work are about to pay off. However, it’s not always a happy ending to a long and illustrious career.
Sometimes, you have to sell a business because it is failing and you just can’t do it, anymore.
In that case, it can be a bit bittersweet. You’re going to earn some money if you pull it off right, but it’s probably not as much as you imagined, and of course, you’re probably not leaving the business behind under positive circumstances.
However, it’s still best to maintain a good attitude and put your best effort into a sale. Just because the business is failing doesn’t mean that you have to give up, take whatever you can get, and call it a day. If you do it right, you can still salvage a sizable profit despite the business being on its last legs.
Today, we want to go over 8 tips to not only help with selling a failing business in the first place but to also get the most out of your failing business.
Let’s get started.
What Determines if Your Business is Failing?
Before we hop into tips, we need to lay out some ground rules for what a failing business actually is. There’s no need to jump to conclusions or start worrying just because you have a couple of quarters with lower sales or the last marketing campaign you initiated failed miserably. Those things happen, and the overall health of the company can still be relatively high; making for a normal sale.
What we’re looking at are companies that are not doing well overall. They are consistently hemorrhaging money, the profit margin has shrunk to such a degree it seems impossible to have even one proper corner, your customer base is disappearing, and generally, it’s not working out.
This can happen just a year into owning the business, or you might see resounding success for decades before it starts to fail. In any case, a company that falls into this category didn’t just have a bad period. The entire thing has shown massive signs of failure for an extended period, and under your guidance, it’s simply not working out.
Is It Difficult to Sell a Failing Business?
Selling a business that simply isn’t performing well and is quickly heading toward bankruptcy certainly isn’t as easy as selling one that is doing amazing and obviously has a bright future on paper. It can be more difficult to find buyers, convince them that it’s a good investment, and finalize a deal. It’s even more difficult to get the business’s true value and make the sale seem worthwhile.
However, that does not mean that it is futile. In fact, it’s done every day.
There are plenty of benefits to buying failing businesses. First, buyers can acquire the assets and equipment that the failing company owns. At the right price, that alone can end up being extremely fruitful. Especially if the company owns assets such as patents, IPs, and other things that can continuously generate revenue if used properly.
There’s also the possibility of absorbing the brand and leveraging its history while revamping how it operates to become profitable again, gaining a new location with existing infrastructure to expand its own business, and various other reasons that a failing company might be a good investment for buyers.
That will come into play in our tips section. So, keep it in mind.
For now, it’s just important to realize that the fact that the business is failing doesn’t mean it’s worthless or a bad investment. It very well can be if the buyer doesn’t have a plan or doesn’t know what to do with it.
However, in many instances, you can get a great payday, and the buyer can walk away with a worthwhile investment that makes good use of something that no longer works for you. It’s a win-win situation when it’s done properly.
8 Tips for Selling a Failing Business
Now that you have an understanding of what exactly we’re talking about, we’ll get to the tips. This isn’t a vastly different process from selling a well-performing business, but the fine details matter, and there’s a lot of work to be done in the prep stage to get you the best deal.
1: Develop an Understanding of the Business’s Situation
First and foremost, you need to know why the business is failing, how bad the financial situation is, and what you actually have to work with in terms of positive highlights.
If you don’t understand these three factors, you can’t work to present the business in the best light possible, and you can’t resolve issues that can potentially ruin deals such as massive debts that most new buyers don’t want to pay off.
Once you decide that working with the business just isn’t for you anymore, spend some time developing a good understanding of why it is where it is. It might be something as simple as a technological advance rendering your business model obsolete, or it might be something that’s hard to admit such as poor hiring and management practices.
Whatever it is, you need to figure it out, and you need to be honest with yourself about it.
This will factor into every other step you take moving forward.
2: Identify Buyers Who are Likely to Buy
This one is also crucial. You don’t want to just chuck the business out onto the market and wait for someone to pop up.
Since the business isn’t making any money, it’s not going to look like a great option for the majority of buyers, and you’ll waste resources approaching uninterested buyers or marketing the sale to people who aren’t interested. Since resources are already tight and dwindling, you can’t afford to take that approach.
Instead, you want to identify potential buyers who stand to benefit from the transaction.
Perhaps you have a ton of unique, custom-made, manufacturing equipment in great condition, and there are similar manufacturers who would love to get their hands on those assets? Maybe you have a lot of brand recognition, but your management slipped up a bit, and the company went downhill.
Business professionals with more experience managing and bringing companies back from the brink might be able to not only take the business off your hands but restore the company to its former glory and bring back those old customers.
This is a process that can take some time, but it’s far better to take a targeted approach than to simply go after a broad audience and waste time and resources.
3: Correct as Many Financial Problems as Possible
A big concept you want to focus on is presenting the business in the best light possible without being dishonest. To do that, you do need to work as hard as you can to correct as many financial problems as you can.
Now, it’s probably not realistic for you to fix everything and suddenly make the business profitable. If that were the case, you’d already be doing that, and you probably wouldn’t be selling it under these circumstances. However, there are always things you can fix to minimize their negative impact on the sale.
Most importantly, you want to minimize debt. Buyers don’t want to acquire a business that is going to immediately put them in massive amounts of debt.
Take some time to pay off as many outstanding debts as you can. Start with the smaller debts, and then whittle down the larger ones. It might not be possible to get rid of all your debt without making profits, but every little bit you get rid of will go a long way toward enticing buyers.
4: Be Honest with Buyers
Your business is failing, and we know we’re telling you to present it in the best light possible, but that does not mean you need to lie, fudge numbers, or be deceitful in any way.
If you’re going to sell your failing business, you need to be 100% transparent. Instead of trying to skew things in your favor, present actual positives to the buyer while reminding them of the things they will have to deal with.
For example, maybe you have a lot of assets, but your financial health is well below where it should be. To honestly highlight your business positively, you’d inform them of the exact financial state the business is in and why, but you’d make sure to highlight all those assets that come with it.
Being dishonest and trying to play games with buyers is a good way to have deals fallout as the buyer does their research, and even if the deal goes through, your dishonesty might end up costing you in the long run.
Transparency is 100% crucial.
5: Negotiate Effectively
Since your business is failing, and it’s not exactly a hot commodity, you will have to make a few concessions here and there to secure a fair deal. However, you don’t want to just hand it over to the first buyer without even bothering to try to get something worthwhile for it.
This is what the negotiation table is for.
You’ll need to make concessions, maybe drop your price a little, add extra perks such as assets you didn’t want to get rid of, and more, but make sure you’re getting something in return that warrants those concessions.
6: Don’t Be Afraid to Walk Away
This seems counterintuitive given your smaller pool of potential buyers, but you do need to know when to walk away. Just because you’re selling a failing business doesn’t mean you need to accept ridiculous lowball offers or negotiation bullying.
Know the value your company still has, and if negotiations aren’t playing out how they realistically should walk away and start again. You can still earn a considerable profit from your business with the right buyer and the right strategy.
7: Be Patient and Highlight the Value
Patience is going to be key. While you are potentially offering a lot of value, the buyer is still a little hesitant. They don’t want to make a bad investment just like you don’t want to get lowballed on the deal. They will likely push for a lower price or more than they’re paying for, and they’ll likely ask for a lot more information than you expected. That is frustrating, but it’s reasonable to an extent.
A good way to deal with this, beyond being patient, is to keep emphasizing the valuable parts of your company. That can be existing assets, future potential, or whatever it is you identified with our first tip that makes your failing business a good investment.
Keep emphasizing that, while it’s not a great company at the moment, various actions can make it extremely profitable or worthwhile.
It helps if you know a potential strategy that you can hype up as a great solution, of course. You have to look at this from a marketing perspective in a few ways. If you can not only provide them with the company itself but also a logical strategy to make the investment pay off, you have a better chance of sealing the deal.
8: Get Help
This is all a lot more complicated than it sounds, and that’s before you even consider the complicated process required to sell even the best businesses. As such, it’s probably best for you to get help from M&A experts, unless you’re 100% certain you can pull it off, and you have experience.
If you’re selling a failing business, Final Ascent is here to provide that help from start to finish.
Our M&A business advisors can provide exit strategy solutions, and the right moves to enhance the company’s ability to sell, assist in finding buyers, guide you through the selling process, and even help you with post-sale obligations and plans.
Contact Final Ascent today!