How to Sell a Failing Business

Businesses flourish, and businesses flounder. Companies go through good times and bad. When the bad times are bad enough, they can force the owner to put the business on the block. Here are some special considerations to ensure you and the buyer both get a fair deal.

Instructions

Difficulty: Moderately challenging

Things You’ll Need:

• Business appraiser
• Broker

1. Accept that you won't get top dollar for a business gone bust. The best you may be able to expect is a "fire sale" price. Recognize that the market for a struggling business is small. You may be limited to buyers with experience in turnarounds.
2. Bring in a consultant or business appraiser to determine a fair market value. Emotional involvement may restrict your ability to come up with a reasonable price tag. Produce comparable valuations of similar properties in your area.
3. Consider using a broker to sell the business. An experienced broker can put you in contact with far more buyers than you'd find on your own.
4. Disclose your business's problems, since a well-prepared buyer will uncover them, anyway. But if there is a personal reason for a recent fall-off in business, such as the owner's ill health, be sure and state it up front. If the business's troubles are a relatively recent phenomenon, you may be able to get more money for it than if the decline has been consistent and long-term. Be completely forthcoming, even if you aren't asked directly. Failing to disclose significant problems can be grounds for fraud.
5. Present facts and figures about your business at its prime to show prospective buyers what kind of money the business once generated, and could again. Amount of customer traffic, average transaction amount, and weekly or monthly receipts is all useful information.
6. Clear any pending litigation and sizable debt before you go on the market. Nothing can kill a business sale faster than a lawsuit or large debts.
7. Establish trust with a buyer by being up-front about the challenges your business faces. This will build faith in you as the seller.
8. Be patient. It may take a buyer some time to perform due diligence and create a plan to restore the business to profitability.
9. Separate assets from the business entity, such as equipment, technology or property. Sell them or license them if you can't get a buyer for the whole company. Licensing technology your company has developed will at least provide an ongoing source of income, even if you can't divest the rest of the business's assets.

Tips & Warnings

• Try to emphasize the opportunity in the business. Possibilities--rather than just problems--may sway some buyers.
• Choose a broker carefully. Some won't hustle to sell a business that shows poor prospects.
• Try not to shut the business down with the hope of selling to someone who will reopen it. Once a business has closed, the only real asset for sale is the property and equipment. You'll get far less from the sale if yours is not an "ongoing concern."