Can You Sell a Business That is Not Profitable?
You’re losing money. You’d hoped to build a business that would be there year after year, but it’s time to face the facts – your company is just no longer profitable. What’s next? Can you sell a business that is not profitable and use that as your exit strategy? Absolutely. But let’s take a look at how and why.
Setting a price on any business means carefully determining how much it’s worth, and that’s as true for a business that isn’t profitable as it is for any other company. So, can you sell a business that is not profitable? With a struggling company, you may need to rethink exactly what is valuable about your business. Start by taking a closer look at your financials. Privately-owned companies often work to find added tax deductions to help reduce the tax bill at the end of the year. That’s usually a bonus until it comes to your financial statements. Typically it makes it look like your company is worth less. Working with a broker, though, you may be able to do a financial recasting to help add depreciation and amortization back into the picture while removing discretionary and non-recurring expenses as well as your salary and any interest payments you made. Those adjustments alone help reveal the true possibilities for a potential buyer.
If that’s not the case, you may want to look at the intangibles your company brings to the market to make it more attractive to potential buyers. You know your business inside and out, so it’s sometimes tough to realize exactly how unique your company is. Maybe you have intellectual property assets or a methodology no one else in your industry has. Even your distinct customer base could be a characteristic a business buyer might be interested in. Working with a broker may help you brainstorm some of these unique aspects.
Can you sell a business that is not profitable? If it is in a promising, growing, location, then that sure doesn’t hurt. A great location can also sell a business, even if the financials aren’t what they should be. Whether you’re leasing the space or you own it, location is everything for a buyer. The buyer is likely to see your space or even your furniture and fixtures as a valuable opportunity.
Believe it or not, even your losses could prove powerful for a potential buyer. Many buyers can use your losses to offset their own tax obligations, and there are actually lots of buyers looking to utilize this strategy to help improve their own companies.
What To Do When You’re Ready to Sell
If you do decide to sell your business, start by working with an experienced broker who can help you value your company and understand how to market it despite its lacking profitability. Keep in mind that the due diligence here will be difficult. The buyers involved will have lots of questions about how the business runs now and whether future profits are possible. They will need to see legal and financial records, and they may need personnel records as well.
As you begin to market your company, you may even have several offers on the table. Carefully consider the advantages and drawbacks of each one before you select an offer that’s right for both you and the future of your company.
Closing the Sale
Can you sell a business that is not profitable? Absolutely. You may also be able to turn it around with the right tools, though. At AMB Performance Group, we work with struggling business owners on a daily basis to help them uncover how to move their companies past the difficult spaces and into profitability. To learn more about what we can do to help, contact us today.