My business is struggling: should I sell up?

Being successful in business is often about being in the right position at the right time. You may have set the business up what seems a lifetime ago, and may have strong emotional ties to it, and feel a deep sense of loyalty to your employees, customers and suppliers. It is more than a business to you: it is a way of life. But the business and you are struggling; you are working harder and longer that ever before, you are spending less time with your family, yet the business is still slowly slipping away.  The decision that you ultimately reach is a difficult one, with far reaching consequences on a number of people associated with the business.

One option that you have is to sell up. But is it a good time to sell up now, when the business is not doing well?  Possibly.  Possibly not. You may or may not have the skills or resources to turn the business around.  But assuming that you have, there may not be a ready buyer for the business once you have restored it to its former glory, and a turnaround often requires you to invest more of your own money into the business.  The risk may be too great.

Selling the business now to someone who is in a better position to turn it around, without you risking your hard earned cash, is an option. Sure, there will be a price to pay, in terms of a reduced price you may get for the business, but few things in life are certain and if we all knew next week’s Lottery numbers…..!

Having decided that selling now could be an option what else do you have to consider? And how do you get the best deal? Again being in the right place at the right time is important, or more appropriately, you need to ensure that you put the right package before the right people at the right time. Consider the following:

The right time

Timing is crucial. Your business may not be attractive to a wide audience now because of its difficulties. But it may be attractive to a handful of potential purchasers, up, down or across the chain in your sector, or in complementary sectors, given what is happening in their business and in and around the sector generally. Deferring the sale until you have finalised a turnaround may mean you missing the opportunity: they may no longer need your business at that time; they may have taken other steps, organically or through another acquisition, and committed the cash elsewhere; the market may have moved on.

The  right  people

So who are the right people? The days of diversification are gone. Businesses ‘stick to the knitting’: they stick closely to what they know best, so the first inclination is to talk to competitors, or near competitors.  Nowadays, many businesses are struggling in terms of sales volume or margins.  Pride and fear are often the only reasons stopping such businesses merging or selling up.    If your business is struggling, you can be sure that others in and around your sector will be too. They too will be assessing their options: there is nothing to be lost, yet much to be gained, from having exploratory talks with other parties.  In addition to the obvious candidates, there is emerging a raft of entrepreneurs, who have often come out of bigger businesses with significant pay-offs, who want to acquire, and merge, smaller businesses.  Potential vendors have difficulties accessing such people.  

You are, quite naturally, worried about confidentiality. You do not want it known generally that you are looking for a suitor. Nor do you want to give away your trade secrets to potential suitors.  Consider employing an intermediary to help you: he can do much to retain confidentiality and  access the emerging raft of entrepreneurs.  He can make the initial introduction to competitors and entrepreneurs on an anonymous basis, put in place confidentiality agreements, and control the exchange of information.

The right package

Deals can be structured in a number of ways. The one that is best for you will not suit the purchaser. And vice versa. Some deal structures are better than others, for either you or one purchaser. One or more may appeal to both of you.

You probably do not have to sell at this time, so you will not sign up to a deal that does not suit you and your circumstances. But the same can be said for the purchaser: no one is forcing them to buy or merge with you. It is important that the deal fits both parties, and it is here that an intermediary can help when the going gets tough: he can bring objectivity to the situation, ensuring that the focus remains on the ‘must-haves’ each party have, and that the ‘would-likes’ are included in the deal, where possible, for your benefit. Examples of ‘must-haves’ often include eliminating your personal guarantees for any business debts, ‘would-likes’ often include the retention of certain staff.

Summary

Selling up will at any time under good or bad trading conditions involves some compromise on your part.  It is a judgment call whether you sell sooner or later.  Selling sooner brings some certainty to what may be a draining situation, for you and the business, and while you may have to compromise in terms of price or deal structure,  you may find the increased certainty more attractive than continuing to soldier on the hope that things pick up.