The answer to our question is of course, yes, but not for the profit you once imagined. Business owners and financial managers have to realize that when they make a decision to sell a business that is challenged that they have to totally un-focus on what the business was worth in the past, and what might be worth in the future. The reality is of course the here and now!
Naturally the danger is that a business founder/owner is improperly focused on a very inaccurate opinion of what the business currently might be worth.
We are told that we have just gone through one of the worst recessions in business history, as quick as it all seemed to happen. Many firms were liquidated in different business sectors, (automotive, etc) and many lenders were forced to foreclose on assets when they deemed that appropriate, or necessary.
Bankruptcies and liquidations are of course the worst case scenario. Companies disappear, lenders lose money. Fixing and selling a business that is challenged is clearly a more viable alternative!
No proper buyers want to buy a business that is on a death spiral of technically insolvent. But, if the business owner can fix the business, or show its turnaround ability that makes a strong case for a sale.
One of the best ways to focus on the challenge of selling a challenged business is to simply focus on what are the true assets of the business and who do they have value to? The alternative is to sell the business for next to nothing – however identifying some key assets and showing a turnaround possibility is highly desirable.
Businesses that are troubled rarely have the best up to date, and accurate (!) financial information. Assets are usually overstated and the potential purchaser is therefore concerned that he or she will uncover even more losses and problems. So the bottom line is: Get your financial information house in order. Then the owner must show there is some sort of path to future profits. If the business can be turned around in a short period of time than of course that’s of great value. But be realistic, putting the next half year into rising the value of the business by $ 20,000.00 makes sense to no one, not the lease of which is the business owner.
One of the greatest assets of any business is the ‘Customer List ‘.Purchasors want to know a smooth transition can be made from old owner to new buyer.
If a company has rights, such as a distribution or franchise agreement great care and focused should be place on ensuring these are assignable to a new owner. The same goes for leases for premises, tax losses that might be utilized etc.
Business is of course people, and identifying any key employees and their value is of prime importance also.
In summary, the goal of any owner selling a challenged business is to position the firm as what the accountants call a ‘ going concern ‘, with a roadmap to future profitability again. Focus on assets, tangible or otherwise as we have seen, and place realistic values on them. Show the business purchaser that you have a real business within a temporarily challenged one!
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