4 Surprising Tips For Selling A Business That Is Losing Money

Mar 12, 2020 3187 0 3

If you think about it, there are some similarities between selling a business that is losing money and selling a house that is in distress or upsidedown on its mortgage.

Obviously, when times are good, selling a house is easy. You can put it on the market at a rate that’s greater than what you owe. You don’t need to make many concessions to sell. Chances are, time is on your side as well.

However, if you’re trying to sell a house that needs repair, or you’re in a situation where you owe more than it’s worth, it’s a tougher process.

In real estate, you won’t be able to put the listing on the MLS and hope someone buys with a traditional loan. Instead, you’ll need to look for an experienced real estate investor who can acquire property in a more creative and non-traditional manner.

As a business seller, you’ll also need to keep your options open, be more transparent with your financials, and be more flexible than you would in a traditional sale.

Here are 4 helpful tips that will allow you to sell your business – even if its losing money.

How To Sell a Business That’s Losing Money

There are options that are available for small business owners regarding how they sell their companies. Probably your best option is to try to sell your business yourself to an investor who specializes in this type of transaction.

Some business owners use a broker to help them sell their businesses or use an online auction – but chances are you’re not going to sell fast nor will you get the deal you want.

If you’re looking at this option, then you’ll want to start taking some steps to prepare now. The sales and due diligence process can slow a business transaction down if you’re not properly prepared. when you are selling a business that is losing money.

Some key areas that a business owner can work on as they prepare to sell a company include the following.

1. Determine the value of the company

A small business owner should conduct research to examine what other businesses in a similar industry have sold for in their local area over the past few years. While this doesn’t provide the value of your business, it gives insight into what a business owner can expect to occur during the sales process. An industry trade association can provide insight into business sales for some industries.

It’s important to evaluate the assets of a business and not think of the value in terms of profit the business earns. When selling a business that is losing money, the owner can look at the following areas to determine the value of the business.

• Examine technology the business owns
• Intellectual property
• Current contracts
• Equipment and vehicles owned

2. Communicate the strengths

When discussing the business with companies or individuals who are potential buyers, it’s important to highlight the strengths of the business. After you have assessed the value of your company, then you can paint an accurate picture of what the business can offer a new owner. While you are aware of the shortcomings of your business, you are also aware of the benefits the business can provide a new owner.

3. Perform due diligence

You will need to have your business documentation ready to discuss the details of the business. Communicate the processes that are used to run the company and provide the potential owners with information about the potential the business has to earn profits.

Allow potential owners to have access to the administrative aspects of the business so they can see how the various departments operate. By having access to the human resource records, finances, and legal departments, the potential owners can make determinations on what contributed to the weaknesses of the company. This administrative information can provide insight into things a new owner can do to turn the company around and make it a profitable business.

Be Honest, Be Accurate

It’s important to provide accurate information on any existing loans that you may not have documented to a potential buyer. As a business owner, make sure you have paid all the business taxes. Confirm that the Worker’s Compensation information is accurate for the business.

Before you sell the business, review all documentation on file for the company and make sure there are no pending lawsuits on the business. You need to make sure the company has complied with filing local and state government paperwork that’s required for your industry. You should pay any outstanding business taxes and fees that are owed before the sale occurs.

The business owner should have the documentation on hand for the corporation and have any meeting minutes on hand for potential owners to review. An inventory log should be available along with the financial statements from an independent auditor.

Additional considerations

As the owner, you may sell some of your shares of the company before the business is sold. You would need to evaluate how this makes the business look to a potential owner if the company is struggling. This money may help clear existing debt or you can use it for personal reasons.

4. Accept an offer

Businesses may have multiple offers to choose from if they show signs that they can become profitable. Buyers can make offers that include the following.

• Cash
• Company shares
• Combination of cash and shares

When selling a business, it’s necessary to examine the benefits and the pitfalls of any offer. There may be tax liabilities that occur based on the timing and terms of the sale. It’s up to the seller to determine if the reward is worth what a buyer offers. A seller can consult an attorney and accountant to assist with evaluating potential offers and the consequences of accepting an offer.