Stating the obvious: It is difficult to sell a struggling business at a good price. However, it does not mean that an unhealthy business is unsellable.
There are several initiatives you can do to make your unhealthy company more saleable and healthy.
It is easier to sell a healthy business because it is more attractive to potential buyers. A healthy business has a strong financial foundation, a clear and well-defined strategy, a positive and productive culture, and a solid reputation in the industry. These factors increase the likelihood that the business will be sold at a good price and that the transition of ownership will be smooth.
As a business owner, it's important to focus on improving the health of your business well in advance of a potential sale, to increase the chances of a successful outcome. This includes having the resources, systems, and processes in place to support a smooth transition, a loyal customer base, and a strong reputation in the community. Some of these elements are more in your control than others.
Having defined and streamlined processes in place is well within your control, but having a loyal customer base is a bit more difficult to control.
Exit planning for struggling businesses
Exit planning is a process that allows business owners to plan for their personal and professional success while and after they leave their company. This includes preparing for all potential outcomes, such as tax, financial, and legal analyses, while also taking into account the needs of both parties involved (seller and buyer).
Even if you have a loss-generating or stagnated business, you will always be able to increase the value and likelihood of selling it by having an exit plan. An important aspect of a good exit plan for a struggling business is to focus on value-optimizing or risk-reducing activities that are in your control e.g. stronger processes.
Getting help from an exit coach to define an exit plan that matches the state of the company and your personal exit goals, can help to minimize or defer tax liability, reduce risk, maximize the value of company assets, increase potential sales revenues, and ensure a seamless transfer of power to buyers.
On the other hand, an inadequate or nonexistent exit plan can diminish a business's prospects, not just during but also after an exit. This could mean increased risk for both you as the existing owner and the company in general, with no guarantee of success whatsoever.
It is like the famous Benjamin Franklin quote:
"By failing to prepare, you are preparing to fail"
It is important for you as a small and medium-sized business owner to consider exit planning, as it can help you to achieve your goals and prepare for potential challenges.
Any good exit plan will always start by conducting a business health check to evaluate the current state of the business, including its employees, finances, marketing and sales, structure and process, vision for the company, and competition in the industry.
Business health plays a crucial role in exit planning. A healthy business is more likely to be sold at a higher price, and in a shorter timeframe, than a struggling business.
The business health check is a vital input in the overall saleability analysis of the company. It is also recommended to conduct a professional business valuation to understand how the health of the business affects the value of the business and to create tasks in the exit plan that will lead to the necessary changes to improve the value.
It is important to begin exit planning on any business two to five years before the desired exit date. It really does not matter whether the business is healthy or not.
Having a conversation with an exit coach can help you set the optimal time frame for your exit. There are many ways to exit your company (management buy-out, selling to a 3rd party, utilizing seller financing, etc.), and it is vital that you choose a strategy that has a high likelihood of succeeding within your desired time frame and also will be able to satisfy your financial needs for the future (e.g. your retirement or funding your next venture).
7 actions point that you should consider doing
Below is a best-practice action list for small and medium-sized business owners that own a struggling company:
- Begin exit planning two to five years before the desired exit date.
- Conduct a business health check facilitated by an exit coach to evaluate the current state of the business.
- Get a business broker or exit coach from Exitplanner to conduct a professional business valuation that is aligned with the health of the business.
- Consult with an exit coach to help you decide on an exit strategy that fulfills your financial needs and has a high likelihood of succeeding.
- Make an exit plan that primarily focuses on the low-hanging fruits and activities that are closer to your control sphere e.g. internal processes.
- Create and execute a structured exit plan with the assistance of a professional exit coach. Make any necessary changes to improve the overall health of the business. (Use a tool like Exitplanner ;-)
- Ensure a seamless transfer of power to buyers by having a good transition plan.