You Can Sell Your Struggling or Closed Business Now

Many businesses have struggled during the COVID19 pandemic and some have not fully recovered. Some are near bankruptcy or already closed. Owners may want to exit but believe they have no options other than just closing the doors and walking away. However, you can sell your business and receive some money from the sale. 

What Makes My Business Sellable Now? 

A low inventory on the sell-side makes businesses more attractive to buyers right now. 

We’re seeing a lot of businesses that are coming to market now that have a reduced employee count. So, maybe their numbers aren’t as good because they had 12 employees pre-COVID, some workers didn’t come back after COVID, and now they only have 9 employees. Those businesses are still sellable because inventory is so low, and a lot of business buyers understand that the impact wasn’t necessarily a characteristic of the business itself, it was a global impact. 

While the reduced employee count may have some effect on the price of the business, an owner may still find doing an evaluation and market analysis worthwhile. 

Some of these companies — like one that was maybe a 20-person company and only has 10 people now — are still a very sellable business because what we’re seeing coming out of COVID is that the hardest thing to find is employees to work. This shortage is so great that many companies are looking at finding strategic acquisitions to be able to find employees and expand their workforce. 

Even if your business is closed, you might still have some assets buyers would be willing to pay for, such as equipment, a lease, inventory, real estate, licenses, or intellectual property.  You may also still be in contact with past employees who a new owner could incentivize to come back to work.  

Do I Have to Do Anything Differently to Prepare My Business for Sale? 

You may want to prepare a little more aggressively, especially for the prospective buyer tour. Clean up the business, repaint, freshen signs, improve the landscaping, and remove old equipment. 

If you still have employees, they’ll figure out that something is going on. You’ll want to call a team meeting and position what’s going on with employees; for example, telling them that you’re selling surplus equipment to improve cash flow or that you want to make the business more presentable to attract new customers. This will enable you to make changes more quickly without raising red flags. 

What Roadblocks Might I Encounter? 

Bankruptcy will present some challenges but won’t prevent the sale. Typically, in small businesses, the business transaction is what’s called an asset sale, not a stock sale. A stock sale is when you’re selling the actual shares of the company to a buyer. The buyer assumes your corporate identity in that case. 

In an asset sale, however, they’re buying the business’s assets rather than equity or identity. These assets include things like equipment, your employees, the trade name of the business, customer accounts, supplier accounts, and inventory. Those are all things that can be transacted even after the business is closed. If you shut the doors on a business tomorrow and close the legal entity, there’s still somebody who is retaining ownership of those physical assets — things like equipment in a machine shop. That’s all still sellable, and you can transfer the title of those pieces of equipment. 

Even if bankruptcy attorneys come in and are selling business equipment to pay first-line creditors, some assets may still be left for the owner to sell after satisfying those debts.  

Will I Have Problems Getting the Price I Want? 

Not necessarily. Working with a business broker will help drive value. We’ll evaluate the business pre-pandemic, during the pandemic, and post-pandemic. A lot of factors impact the value. The two main factors are: 

  • The cash flow of the business (EBITDA or SDE – Seller’s Discretionary Earnings) 
  • The risk or benefit of the business to a new owner (value driver characteristics) 

The value of the business is going to be some multiple of that cash flow (EBITDA or SDE). So, perhaps a business went from $2 million in revenue down to $1 million, and the cash flow dropped from $500,000 to $100,000. That’s a drastic drop, but some of it may be offset in today’s market because businesses are transacting at higher multiples because of the very high buyer demand. So, a business that would have transacted at a three-times multiple of cashflow may now transact at four and a half times. 

We’ll also do a walkthrough with the owner and score the business on value drivers such as:

  • The strength of the management team.
  • The customer base.
  • Number of employees.
  • Cleanness of the books.

We’ll see if we can make instant improvements, such as getting the books in order, documenting policies and procedures, or putting the right people in the right places. These actions make transitioning the business easier. They add value to the business because the buyer is going to feel more confident of succeeding in a business that has documented procedures and people to help run it.