There are many reasons to sell a business, but the idea of selling a business to survive may be viewed as one of the least obvious ones.
Let’s be absolutely clear about this at the outset. The best time to sell a business is when it is either doing very well or else on the verge of doing very well. However, selling a business to survive may be a viable option if the business is struggling and cash is tight.
Here survival can mean two things: exiting the business in a controlled manner without losing your shirt, or bringing capital into the business to maintain employment for existing personnel.
This idea is not always obvious especially at the end of the line when suppliers and employees have not been paid for a while and options seem to be reducing by the minute. At this point the idea that the business has any value at all may seem insane, but it isn’t.
At the very least the business will have some physical assets and if it has a trained workforce, then do not underestimate the value this can represent to a new owner.
Failing to recognise this in good time can in effect be like burning your own money.
There have been some notable examples of this type of sale in recent times – BHS in particular sticks out.
Forget about the morality tale for a minute and just concentrate on the original deal. When Philip Green decided to sell BHS it was making a loss and had a big hole in its pension fund. On the plus side it also had lots of prime location properties, a well established brand and lots of loyal trained employees. It was sold for a pound on the basis that the new owner would take on the existing liabilities and invest.
As far as Philip Green was concerned this was a good deal. In selling out he could free himself from any future liabilities and ensure the survival of the business he was leaving – what could go wrong?
As we now know lots could go wrong, but had the sale been made to the right buyer then this could have worked. It has been argued that the real culprit on the deal was Goldman Sachs for not carrying out sufficient due diligence on Dominic Chappell – this is a question to be resolved somewhere else. However, one conclusion that can be drawn from this tale is the importance of good, impartial advice on any such deal. Another very cold hearted and self-centred conclusion is that, negative press aside, Sir Philip looked very comfortable on his yacht during his holiday this year. In other words, the deal did work very well for him.
There is no argument that most small business entrepreneurs take a personal risk in starting up, or buying out a business. Certainly, anyone who has a taken out a small business loan recently will understand the very real nature of personal risk and just how limited the notion of limited liability can often be.
While most take on this risk on the basis that the upside, when it comes, can be very good indeed, the downside can be very bad indeed. In that context, selling out to protect yourself primarily is acceptable and advisable even though we must also accept the moral duty to minimise the harm to other interested parties such as suppliers and employees.
Timing is of course very important. It is no use deciding to sell while watching the bailiffs strip out your office – that would be a tad too late. Some prior planning is therefore advisable. In fact, planning is always advisable even if the plan is not stringently adhered to. For example, a 12-month cash flow plan will show where the future pinch points are and if sales are not matching projections consistently, then you should be able to have sufficient warning to take action in good time.
Taking The Right Action
Okay then, you know trouble is on the way so now what?
Well, it is important to remember that you could sell the whole business or just part of it. It will depend on the circumstances at the time, on the buyer/investor concerned and of course you own wishes.
One thing we should be clear about is that it is not always possible to conjure a potential buyer out of thin air from a standing start. It is therefore important to consider the possibility in advance and have an initial discussion with a business broker who can highlight buyer prospects in advance for you.
The business broker can also provide advice on the saleability of the business and the sort of measures that should be put in place as the business develops day-to-day to ensure that, if the day ever comes when you have to sell in a hurry, you will be ready.
Being ready also usually means getting more from the sale – ideally a lot more than a pound.
There is no guarantee of success in this world and businesses are often shut down for entirely unexpected reasons completely out of the control of the owner – you never know what is round the corner. A classic example might be a personal accident or terminal illness of a spouse.
Just because you prepare for a potential business sale does not mean you are selling the business -it’s just a piece of personal security and one of many potential lifeboats.
If you think you could be in a position in the future where you will be selling a business to survive then prepare early by talking confidentially to a reputable business broker like A2Z Business Brokers – before it is too late.