Selling a failing business might seem impossible, but it’s not. At Unbroker, we’ve seen many entrepreneurs successfully navigate this challenging situation.
This guide will show you how to sell a failing business, from assessing your company’s true value to finding potential buyers. We’ll provide practical steps to help you make the best of a difficult situation.
What’s Your Business Really Worth?
Pinpoint Why Your Business Struggles
Start with a deep dive into your financials. Look for patterns in your revenue, expenses, and cash flow. Are sales declining across the board, or just in certain areas? Are your costs spiraling? A U.S. Bank study found that 82% of small businesses fail due to cash flow mismanagement. Knowing where the money goes wrong is essential.
Next, examine your market position. Has a new competitor taken your market share? Is your product becoming obsolete? 42% of small businesses fail because of a lack of demand in the market for their product. Be honest about your standing.
Take Stock of Your Assets
Now, focus on what your business still has going for it. Start with tangible assets like equipment, inventory, and real estate. Get recent appraisals if possible. Don’t overlook intangible assets like patents, trademarks, or a loyal customer base. These can be incredibly valuable to the right buyer.
On the flip side, tally up your liabilities. Outstanding loans, unpaid taxes, and potential legal issues all factor in. Be thorough – surprises during due diligence can derail a deal.
Crunch the Numbers
With all this information, you can determine your business’s true value. There are several methods:
- Asset-based valuation: Simply the value of your assets minus liabilities.
- Market-based valuation: Comparing your business to similar ones that have recently sold.
- Income-based valuation: Based on your business’s ability to generate future cash flow.
For a failing business, an asset-based valuation often proves most realistic. However, if you can demonstrate potential for a turnaround, buyers might consider future earnings potential.
Emotion has no place here. Your years of hard work and sacrifice don’t factor into what a buyer will pay. Focus on the cold, hard numbers.
Seek Professional Guidance
While you can perform a rough valuation yourself, professional help can provide a more accurate picture. Consider working with a business appraiser or an experienced broker. These experts can offer insights you might miss and help you present your business in the best light.
A clear-eyed approach to valuation sets the stage for finding the right buyer at the right price. With a realistic understanding of your business’s worth, you’re ready to move on to the next critical step: preparing your business for sale.
How to Prepare Your Failing Business for Sale
Address Quick Fixes
Start by tackling easily solvable issues. Renegotiate unfavorable contracts, cut unnecessary expenses, and streamline operations. According to SCORE, 82% of small businesses fail due to cash flow problems. Examine your cash flow and implement immediate improvements where possible.
Don’t neglect your online presence. Update your website and ensure your social media accounts are current. These small changes can significantly impact a buyer’s first impression (and potentially increase your sale price).
Organize Financial Records
Accurate, up-to-date financial records are essential when selling a business. Compile the last three years of profit and loss statements, balance sheets, and tax returns. If your bookkeeping lacks organization, hire a professional accountant to clean up your records.
Create a clear inventory of all assets and liabilities. This includes equipment, real estate, intellectual property, outstanding debts, and ongoing contracts. Be meticulous – buyers will scrutinize every detail during due diligence (so it’s better to be prepared).
Develop a Turnaround Narrative
While honesty about your business’s struggles is important, you also need to paint a picture of potential. Create a realistic plan for how the right buyer could turn things around. This might involve:
- Identifying untapped market opportunities
- Outlining cost-saving measures that haven’t been implemented
- Showcasing underutilized assets or intellectual property
Support your narrative with data wherever possible. If you’ve started implementing changes, highlight any positive trends, no matter how small.
Highlight Unique Selling Points
Identify and emphasize the unique aspects of your business that could attract potential buyers. This might include:
- Proprietary technology or processes
- Strong customer relationships or brand loyalty
- Valuable partnerships or contracts
- Prime location or market position
These unique selling points can set your business apart from others on the market and potentially justify a higher asking price.
With your business prepared for sale, the next step is to find potential buyers who can see the value in your struggling company. Let’s explore effective strategies to identify and attract the right purchasers for your business.
Where to Find Buyers for a Struggling Business
Target Strategic Industry Players
Companies in your industry might see value in acquiring your business. These potential buyers often seek to expand their market share or diversify their offerings. The Consumer sector saw a 22% decline in M&A activity to US$475 billion in 2023, according to a Deloitte study.
Create a list of strategic buyers and research their recent activities. Have they acquired other businesses lately? Are they expanding into new territories? Use this information to tailor your pitch to their specific goals and needs.
Consider Competitors (with Caution)
Your competitors might want to acquire your business to eliminate competition or gain access to your assets (customer base, intellectual property, etc.). However, exercise caution when approaching this option. Always have a solid non-disclosure agreement (NDA) in place before sharing sensitive information.
When you pitch to competitors, focus on the benefits of acquiring your business. You might have a unique technology they lack, or your customer base might complement theirs perfectly. Prepare to articulate these benefits clearly and concisely.
Explore Internal Opportunities
Don’t overlook potential buyers within your own organization. Employees, especially those in management positions, might want to take over the business. They already understand the company’s operations and may have ideas for turning things around.
Employee ownership alone is not sufficient for companies to attain competitive and performance advantages. However, when implemented effectively, it can contribute to improved company performance.
Reach Out to Suppliers and Partners
Consider contacting suppliers or other business partners. They might see value in vertical integration or expanding their own operations through acquiring your business. These buyers already understand your industry and might have complementary resources to revitalize your company.
Leverage Online Platforms and Networks
Use online platforms and networks to reach a wider audience of potential buyers. While there are several options available, Unbroker is one of the platforms for selling businesses. AI-driven search platforms have emerged as powerful alternatives or complements to traditional search engines, which could potentially benefit the process of finding buyers for struggling businesses.
Final Thoughts
Selling a failing business presents challenges, but opportunities exist for those who approach the process strategically. A thorough assessment of your company’s value, coupled with careful preparation, will position you for success. Transparency about your business’s struggles, while highlighting its potential, can attract the right buyers.
We at Unbroker understand the complexities of selling struggling businesses. Our modern platform offers transparent pricing, AI-driven buyer matching, and expert support to streamline the process. Unbroker helps you navigate how to sell a failing business without high brokerage fees.
The sale of a struggling business requires patience and perseverance. You must focus on tangible value and set realistic expectations throughout negotiations. Alternatives like restructuring or pivoting your business model should be considered if a suitable buyer cannot be found.
