In a perfect world, businesses would only be sold when they're healthy and attractive to buyers. Unfortunately this isn't always the case. Trying to market a business as an appealing acquisition while it's in decline can be difficult, but it’s not impossible. Here are six strategies to use when selling a business in less-than-ideal circumstances:
1. Focus on the positive. Concentrate on the strong points of your business when meeting with potential buyers. Even if your current financial situation isn't what you would like it to be, think about other areas of the business that aren’t distressed. Perhaps your business is established within its industry and is known throughout the community. That rapport and community presence is hard to achieve. Buyers should be aware of it.
Likewise, trained employees can be one of the most valuable and attractive assets when selling a business. If the work of finding, hiring and training new employees is already done, the buyer can use the employee base as a springboard and focus efforts on future growth. If you have a core group of employees that are invaluable to your business, bring that to the attention of potential buyers as well.
2. Identify synergies. It's important to uncover the synergistic value of your business. Your business is failing as a stand-alone entity. However, if your business was folded into another operation, what might the value of that business be to the new owners? Would the business be immediately accretive to the new owner? Despite many synergies, will the business still lose money or barely break even? Some of these questions may be hard to answer until an actual buyer shows up, but an experienced intermediary can help you think through various scenarios so that you can determine the various price, terms and deal structures.
3. Price your business to sell. While it's important not to undervalue your business — distressed or not — there's no sense in touting false bravado either. Be honest with buyers; they'll likely know what a fair price looks like. Given your situation, consider pricing it at the lower end of reasonable. It may be counterintuitive, but a low price can potentially attract several buyers and keep the price and terms at a higher level. A third-party business valuation with preapproval from a bank is also recommended to gain an accurate picture of your business’s worth.
Be prepared to offer very favorable terms to the buyer. For example, much of the sales price may be tied to the future performance of the business or key milestones being met. Being flexible on the terms will increase the odds of your return assuming the business has a good foundation and is salvageable.
4. Clean house. Having the finances of your business in order is a simple way to instantly make a business acquisition more attractive to a buyer. No one wants to take over a business that's disorganized, especially when it's in rough shape. Get a legal review of your client and vendor contracts, employment agreements, and other business documents to ensure that the business can be easily transferred. Even take the time to spruce up your facilities, which shows that you're still confident in your business and its future.
5. Maintain confidentiality. It's important to keep quiet about selling your business. Spreading the word freely in hopes that someone will come along and make you an offer is a long shot. That may happen, but in reality that method often spooks employees, clients and vendors, who then start looking for a new employer or partner. As mentioned before, your employees and pre-existing relationships with clients and vendors are attractive assets of your business. It's important to keep those intact. Also consider the benefit of working with an experienced business broker who can help safeguard the confidentiality of your business.
6. Stay focused. Even though you're looking to sell your business, it's vitally important that you ensure all your efforts are focused on running the business. It can be difficult to avoid pulling back from everyday tasks to put effort into the sale, but it's essential to stay committed to the day-to-day responsibilities of running the business. Show buyers that the business has a future, even if it's distressed. Staying focused on your business will help you maintain that confidence and keep yourself and your employees fully engaged. Your efforts may even yield rewards in business performance, which can be an added bonus for when buyers come knocking.
Finally, it’s worth noting that buyers often have a sixth sense for desperation. It's important to keep a level head and remain confident throughout the sales process, otherwise they'll likely exploit your weaknesses in order to gain leverage in the transaction. But being confident about your business is just as important as being honest about it and maintaining it. If you're considering selling your distressed business, take some time to follow the above steps and get everything from the facilities to the books together. Doing so will help to make your business more attractive to buyers and, in turn, make selling it a much easier process.
Domenic Rinaldi is president and managing partner of Chicagoland Sunbelt, a business brokerage firm that focuses on helping people buy, grow and sell businesses in Chicago and the surrounding Midwest area. Domenic can be reached at drinaldi@sunbeltnetwork.com.