10 Factors to Consider before Selling an Unprofitable Business
Starting and scaling a successful business is not all about strategy. Sometimes, it requires a knowledge of the market and knowing when to throw in the towel. Indeed, it may take some years before some businesses break even – and only a few actually do. If you notice that your business is spending more money than it generates in revenue, it may be time to sell it.
In this article, you will discover expert tips for selling an unprofitable business.
Selling an Unprofitable Business: When to Consider Selling
What could make a business unprofitable? It could be making lower sales, spending more money than it makes or having more competitors to share the market with your business.
According to Entrepreneur.com, it may not be worth it to sell off your business. By looking at important factors like expenses, paying more attention to customers’ feedback, and making better offers, you may be able to salvage the business.
But when all those don’t work, here are some of the best tips to selling off your unprofitable business:
1. Prepare for Due Diligence
The fact that you have declared the business for sale attracts many prospective buyers. They are not just coming to buy the business. They also want to know what went wrong to see if it is something they can salvage once they are at the helm of affairs.
Preparing ahead of time helps you to put all these factors into consideration. To point you in the right direction, here are some of the questions you should be prepared to give answers to once your unprofitable business buyers start calling:
- Why is the business failing? Did you do anything wrong along the way?
- What market share does the business currently hold? Does the target market trust the brand well enough to allow it to change hands?
- How does the business function?
- What is the current legal standing? Is the business bankrupt? Has a case in the law court?
- How long have you been running the business and what is the average yearly turnover like?
Being prepared for these questions helps you to be confident to answer them when asked. With the right answers and a bit of coercion, you can encourage the prospective buyer to give it a shot. Maybe, a change of administration is what the business needs afterall!
2. Consider Leasing the Business and Its Components
Sometimes, your business needs a change of administrator – but not permanently. You want to lease out the company and its equipment, including the office if required.
Allow “new owners” to run it for a while until it bounces back. Only after the leasing attempt fails to bring in the desired results can you consider selling off.
3. Make a Contrast of the Business’ Strengths and Weaknesses
Where have you fared so well in running the now “unprofitable” business and where do you need to improve?
Doing these assessments helps you to come up with a definite plan of how best to scale the business when it is sold. With the blueprint, new owners will sure have a foundation from which to start rebuilding the business.
4. Analyze the Business Worth
Your business may not be making as much profits as it used to, but you have a considerable number of contracts that can spin a magic in the next couple of years.
Evaluate your business and take stock of its current stock. Here are some of the things you want to analyze:
- The cost of equipment available to the business.
- Business vehicles and offices.
- The number of active contracts.
5. Sell to a Sister-Business
Business is war; sometimes, you want to accept that your competitors know better than you do. When your business makes less profit, you may consider selling an unprofitable business to a “sister-business” or competing brand.
This strategy works best if your business dominates a market the competitors would like to have. With this in mind, making an offer becomes easier.
6. Give it Time
By going through past financial records, you will notice when the revenue began to drop. In a couple of months, you have moved from a flourishing business to a near-bankrupt company.
As much as you want to sell at this point, it may be worth it to sit it out for a while. Probably, the business strategy or market appeal waned for some time. In a few months, you may be back in profits again.
7. Do not be Intimidated
The keyword is “negotiate from a place of strength.” When you give off the impression that you are selling an unprofitable business to clear out, you will receive belittling offers. But when you lay the offer on the table and stick to it, you will likely get a better buyer.
Here is how to negotiate the sale of your unprofitable business without feeling intimidated:
- Calculate and be sure of your business’ current worth.
- Highlight the strengths of the business.
- Keep a good financial record.
Doing all that helps put you in charge of the offer than your prospective buyers.
8. Pick the Best Offer
Prospective investors will make you several offers, from a one-time payment to taking the business on lease. Do not be in a hurry to accept any of the offers. Evaluate the pros and cons before deciding on one.
For emphasis, choosing a one-time payment may not be advised, because you may be required to pay tax for it.
9. Sell the Business and Keep it “Alive”
It is possible that you built the business to be a worthwhile venture, but along the line, it stopped making profits.
Choosing someone, preferably an investor who shares a similar vision as you do helps you keep the business’ aims going, even when you aren’t the one running it.
10. Talk to a Professional before Selling an Unprofitable Business
Seek help from a financial advisor who puts you through the process of selling the business. The professional can also help you follow the right procedures to listing the business for sale.
Bonus Tip: Have a Future Investment in Mind
That your current business doesn’t make profits any longer doesn’t mean that another wouldn’t. If you are bent on selling your unprofitable business, be prepared as well to venture into a new business.
The goal is to put the funds you raised from the sale into good use and build a better business in the next couple of years.
Selling an unprofitable business may seem impossible but you can make some money even though the profits haven’t been coming all this while. By talking to a professional, evaluating the business assets’ and reinvesting into another business, you can pick up from where you stopped and continue building a great business.