It can be difficult to decide whether or not to sell a currently unprofitable company. In this situation, many business owners may question whether or not there is a market even for a venture of this kind. The situation is not as grim as it may seem. It is possible to sell a business that has not been profitable. In some cases, this can even be advantageous. Legal professionals such as those at Darwin Gray can provide invaluable guidance in this complex process. We’ll explore the best way to sell a business which isn’t profitable and what strategic considerations are involved.
Understanding the Appeal
It’s important first to understand why someone might consider purchasing a business that is losing money. Buyers may be interested in the following:
- Location: A business may be located in a prime location.
- Assets: These assets could include intellectual property or technology, as well as valuable physical assets.
- Brand loyalty or value: The brand may have value despite its financial performance.
- Turnaround Potential: Certain investors specialise in revitalising struggling businesses.
- Synergy with an existing business: A business that complements another business can create value.
These aspects will make your company more attractive to potential buyers and can help you set the stage for a successful sale.
Preparing for the Sale
Valuation
Understanding what you are selling is important. A non-profitable company’s valuation might be based less on its financial performance, and more on the assets, turnaround potential, and position in the market. Professional valuation services help to communicate this value to buyers.
Financial Documentation
Transparency is the key. Even if your numbers aren’t impressive, having well-organised and clear financial records will help you build trust with buyers. Included are historical financial statements and tax records as well as details about debts and liabilities.
Legal Considerations
From property leases to contracts, to intellectual property rights, it’s important to make sure that the legal aspects of your business are in order. Unresolved issues with the law can complicate and even deter potential buyers.
Marketing your business
The Right Buyers to Target
It is important to understand who could benefit from the purchase of your business. It could be competitors, financial buyers, or strategic investors looking for a new challenge. You can increase your sales by tailoring your marketing to the target audience.
Emphasise Opportunities
Focus on the benefits that a business can offer a new owner. Focus on aspects such as loyal customers, strategic partnerships or growth opportunities in the market. Sometimes, demonstrating potential is more attractive than current performance.
Use Professional Brokers
Business brokers are a great resource. Business brokers have a network of buyers that they can use to match your company with the right prospects. They also handle the paperwork and negotiations, which streamlines the sale process.
Negotiating the Sale
Negotiations for the sale of an unprofitable business are not only difficult but also crucial. Prepare to discuss price, payment terms (such as seller financing or earn-outs) and your involvement after the sale. The negotiation skills and experience of a solicitor can be very valuable in securing favourable and realistic terms.
The Role of Professional Advice
It is important to have professional advisors on your side, especially solicitors when selling a business that’s not profitable. They can handle the legal complexities, such as ensuring that any claims made about the potential of the business are legally valid and navigating contractual obligations.
Conclusion
It’s not impossible to sell a business that isn’t profitable, but it can be a challenge. You can find a buyer with the right approach and professional guidance. They will see potential where others may see failure. The key is to highlight the assets of the business, its potential for growth and strategic value, and present everything transparently and attractively.
A successful sale is dependent on a thorough strategy, meticulous preparation and expert handling of legal and negotiation details. This process highlights not only the value of a business but also its owner’s resilience and foresight. Any reputable solicitor can guide you through this complicated terrain and ensure that your business is not only sold but is also positioned as an opportunity for its future owner.
