Selling an unprofitable business can be a challenging but necessary decision when financial struggles overwhelm the potential for recovery. While the process may lack the excitement of a thriving enterprise’s sale, it offers an opportunity to salvage value, relieve burdens, and possibly start anew.
When it comes to how to sell a failing business, strategize how you’ll position the company, its assets, potential, or market presence in a way that appeals to the right buyers. Although letting go of what you’ve tried to grow is bittersweet, with the right approach, this transition can still provide a meaningful step forward.
Key Takeaways
A business doesn’t need to be profitable to attract buyers—many look beyond the numbers for hidden value. Growth potential, competitive advantages, and a strong customer base can make a struggling business appealing. Buyers may see opportunities to turn things around with the right funding or market strategy. Intellectual property, like patents and trademarks, adds value, while strategic alignment.
One of the biggest reasons businesses fail is limited working capital. But if you can show buyers that better funding in key areas could make a real difference, they might see the opportunity instead of just the struggle.
Yes, you can sell an unprofitable business—and even get a solid deal despite the challenges you’ve faced. Increasing revenue and reducing costs, like replacing key managers, can make it more attractive. Avoid an asset sale by highlighting growth potential. Working with industry-specific business brokers can also uncover opportunities and ensure you get the best possible price.
Key Factors That Make Unprofitable Businesses Sellable
Prospective buyers often look beyond a business’s profitability and consider other appealing aspects. Here are some additional factors that can capture their interest:
Growth potential and market opportunities. Potential buyers can see growth and expansion opportunities within the business even if the current owner couldn’t make them profitable. A combination of the right amount of funding, market access, or funding may help turn the tides.
Competitive advantages. A company that shows that they’ve created something valuable and superior to what other companies deliver, the offering is considered a competitive advantage.
Customer base. A stable number of actively subscribed customers appeals to prospective buyers. This is an indicator of a good reputation within the market where it operates.
Intellectual property. If the business owns patents, trademarks, copyrights, or other intellectual property, it may attract buyers looking to acquire these valuable assets.
Strategic value to competitors. The business could align with the buyer’s current operations or enhance their product/service offerings. In these situations, the buyer may be inclined to acquire the business to strengthen their competitive edge.
How to Make Your Unprofitable Business More Attractive to Buyers
How do you sell a business that is not profitable? The process of making the business appeal to buyers, whether it’s profitable or not, is all about showing its earning potential. The financials may show that the company isn’t making profits, but you can always look for areas of improvement and sections that will prove to become an opportunity given there’s enough investment.
One of the biggest reasons companies fail is a lack of working capital. However, if you demonstrate to buyers that sufficient funding in certain business operations can turn things around, they may see the potential.
How do you present these opportunities? Improvements can be summarized into two points:
Streamline operations. Determine where you can cut back on costs within the operations.
Document improvement opportunities. Write a report that details where the future owner can turn things around.
Strategies for Selling an Unprofitable Business
Can you sell a business that is not profitable? Believe it or not, you can. And there are even ways to get the most out of the sale.
While it’s true that an owner being less involved fetches a higher sale price, an unprofitable business is one that might require more owner involvement. You might need to personally replace key managers and oversee their responsibilities, as this can help reduce payroll costs. You also might need to try different sales approaches to increase profit and execute marketing strategies you consider effective but might have been overlooked by the staff member in charge of the job.
Work toward avoiding an asset sale by placing more efforts to increase revenue. Why does this matter? If your business is losing money, buyers will only value it based on tangible assets—like operational equipment—that lose value over time. You won’t maximize your earnings if you’re just selling off depreciating assets.
Working with business brokers is an excellent option if you want to unearth more opportunities to increase the value of your business. When you choose experts whose scope includes your sector, what you’ll have at your side is a team with effective negotiation tactics for maximizing the value of your company.
FAQ
How does valuation work when selling a business that is not profitable?
For appraisers with years of experience in how to sell a business that is not profitable, the first method they’ll take is the asset-based approach. Property, equipment, and trademarks are considered assets. They’re all added up then liabilities are subtracted afterward.
How do I walk away from a business that’s not generating profit?
Ideally, it’s best to sell the business while it’s at its peak of earning revenue. But if it’s not generating profit, you also need to accept that you won’t get the most out of the sale as its value will always be based on the physical assets. If you want to turn things around before the sale, seek the advice of a business broker who can look at areas where you can show revenue potential.
Can you sell a business that’s losing money?
Selling an unprofitable business is always possible. However, the factors that will go into your valuation is different from that of a profitable business, which has more future earnings potential.
Are there companies that buy failing businesses?
There are companies that purchase failing businesses. As long as the owner is able to prove a company’s earning potential, it’s bound to attract buyers.
Conclusion
Final recommendations about how to sell an unprofitable business:
Don’t just walk away from an unprofitable business as there are no chances to increase its value. You’ll be left with an asset based valuation if you exit immediately. Get more involved and unearth more opportunities that the future owner can improve upon.
Maximize what you can get from the sale by hiring business brokers who can help you look for opportunities to increase the sale value while connecting you to the right buyer.
