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Can I sell my business to generate funds for debt repayments?

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Maximising returns to facilitate debt repayments

Businesses are typically formed to build a legacy, function as an income cushion for generations to come or a platform through which to strengthen reputation. During the natural lifetime of the business, numerous factors could result in shortening the life span, such as lack of financial resilience, turbulent trading conditions or financial difficulty.

If your business is experiencing subtle signs of financial distress, you may seek a turnaround investor or buyers interested in this type of opportunity to facilitate a recovery. On the other hand, if your business is financially healthy and you wish to realise the efforts of your investment, you may consider selling your business to the highest bidder.

Generating returns from business sale

If you require a quick inpour of cash, you may consider selling company assets to drive money back into the business to replenish stock, pitch for higher-value custom and increase cash flow. If you’re interested in generating cash on a larger scale to fuel other personal or business interests, selling your business could efficiently realise asset value by transferring the business to an interested buyer. To kickstart the business selling process, you will need to prepare the business for sale and decide on an appropriate route to sell your business through, here is a breakdown of the typical process.

  • Establish a business sale strategy – You can choose to sell your business privately by sourcing a buyer and independently arranging for your business valuation. Alternatively, you can appoint a business transfer agent specialising in the sale and acquisition of businesses, using their existing database of actively searching contacts to attract a buyer
  • Prepare your business for sale – After carrying out an initial review of your business, prepare it for sale by streamlining operations and reviewing expenditure. By creating the best version of your business, you can appeal to experienced buyers and maximise the sale value
  • Collate financial reports and company accounts – To accurately gauge the value of your business and provide the relevant information to prospective buyers, you will need to prepare an information pack which features a compilation of relevant financial data and forecasts
  • Business valuation – Conducting a valuation of your business will help determine a suitable asking price and keep insufficient offers at bay. A business valuation can help determine what contributes to the value of your business and what areas can be improved to maximise the sale value
  • Attract buyers and negotiate a sale price – Beginning the search to sourcing a genuine buyer will consist of price negotiations, possible operational adjustments to fulfil buyer requests, leading you onto the final stage of sale completion

Seeking turnaround investors for your ailing business

If your solvent business is experiencing early signs of financial difficulty, you may consider selling shop to give the business the best chances of survival by transferring it to an owner with disposable capital which can be used as a cash injection for the business. If your business is cash poor and can no longer fulfil essential liabilities, you may be on the receiving end of creditor pressure. If you are receiving urgent correspondence, such as a bank letter requesting immediate repayment of funds, you likely have a short window to facilitate the recovery of the business before being exposed to legal action and entering insolvency.

During the coronavirus pandemic, businesses on the firing line of trading restrictions may have accessed emergency financial support backed by the government to tide over any gaps in income, such as through the Coronavirus Business Interruption Loan Scheme (CBILS). If you have arrived at the realisation that you will be unable to make repayments due to restricted income, you may consider strengthening the prospects of the business by selling shop, and therefore carrying out the following steps:

Establishing a turnaround plan - By recommending an appropriate business resilience plan based on the previous track record of the business, the prospective buyer(s) can establish a turnaround plan and forecast cash requirements

Preparing forecasts and balances – By preparing a forecast on the financial position of the business, taking into consideration cash balances, asset value and upcoming debt repayments, prospective buyers can easily determine in which area investment will be required

Detailing assets for sale – If your business has a clear set of assets which can be considered for sale, this is an ideal starting point which can generate a quick stream on income. The first step for any new owner will be to carry out a cost-cutting exercise, tighten credit control measures and conduct a risk test to pinpoint pressure points

If you are in the market to sell your business or seek a buyer interested in turnaround opportunities, the key is to act fast and sell your company while it is in a position of financial strength. The preparation stage is also instrumental in maximising market value as this could result in reaching a higher price bracket, generating greater returns than anticipated.

The Selling My Business team have over 100 years’ combined experience in selling businesses so they can guide you through each step of the process, from sourcing a buyer interested in turnaround investments to conducting a business valuation. Contact a member of the Selling My Business team to discuss your strategy and how to maximise sale value.

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