To start, let’s see if your Company actually is ‘troubled’.
Of course, there many different types of ‘troubled’. And some are in more difficulty than others.
But you will know it when you see it. Here are some of the characteristics to look out for:
- Declining earnings or negative earnings
- Negative book value
- Rapidly running out of cash
- Default on bank loans
- Inability to meet debt obligations
Just knowing that a company is in trouble can decrease the time needed to sell the company by addressing the issues that a buyer will be concerned with.
Sellers of healthy companies try to maximize the selling price. They utilize a controlled and confidential selling process. They try to get not only the best price but also the best terms. The chances of achieving the seller’s expectations are better when the company is healthy.
Sellers of troubled companies try to get out of the situation with the least amount of debt obligations and as quickly as is realistically possible. Before the company further deteriorates and then becomes even harder to sell.
- Determine why the company is having problems.
- Figure out what it is, exactly, that you are selling and what is a realistic selling price.
- Have a good marketing plan to sell the business. Who is the most likely buyer? When should it be marketed? What techniques should be used in marketing the company?
- Know the negotiation and transaction structure in advance. Before the marketing efforts begin.
To repeat: the objective in selling a troubled company is to get out of the situation with the least amount of debt obligations and as quickly as possible. Doing this before the company further deteriorates. In selling a troubled company, time can be of the essence.
A buyer of a troubled company is hoping to buy something they can turn-around, and reap the gains by selling the stable, improved company later. There are actually great returns to be made with this strategy, though it is quite risky if the buyer doesn’t know what they are doing.
But even better is to fix the troubled company’s problems and stabilize the situation before the sale. That way, the seller can capitalize on the difference between the value of the business when it is troubled and when it is operating efficiently and well.
