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How to sell an unprofitable business profitably?

Every year, thousands of businesses fail to make a profit. To recoup some of their costs, the owners may try to sell a business. 

Following are a few factors to consider while deciding to sell your business.

 

Calculate your business’s Worth

A company's worth can be determined in ways other than its profitability. If the company has won some significant contracts, developed some innovative technology, or possesses other valuable assets, this can increase the company's value to prospective buyers. Many buyers buy businesses based on potential earnings rather than current profits. In addition, a large corporation may purchase a smaller operation and use its greater resources to turn a profit where the original owners lacked the ability.

 

Negotiate from a Position of Strength

One of the most common mistakes that business owners make is undervaluing themselves. They consider a lack of profits to be a sign of weakness. Some owners sell in a panic, hoping to recoup some of the money, time, and effort they put into the failing business. Owners can negotiate with potential buyers from a position of strength once they understand the true value of their assets (physical equipment, customer lists, technology).

 

Get Ready for Due Diligence

A prospective buyer will have many questions when an owner decides to sell a business. Due diligence enables the prospect to investigate how the business operates and whether it has the potential for future profits. Due diligence can entail investigating the company's legal, financial, and personnel records. This is especially important for buyers of unprofitable businesses, as the prospect will want to know why the company failed to turn a profit before making an offer.

If the unprofitable business has a lot of potentials, the seller may have several offers. Cash, shares in the buyer's company, or a combination of the two can be used to make an offer.

The seller must weigh the benefits and drawbacks of each offer. For example, while a one-time cash purchase may have the most immediate appeal to the owner of a struggling business, such an offer may also come with a significant tax burden. Profit maximisation is a common long-term goal for new business owners and managers.

However, you frequently have to work around several constraints, some of which you have control over and others over which you do not. Short-term profit is difficult to achieve due to the time it takes to establish favourable supplier relationships, efficient operations, and a customer base.

 

Costs of Supply

Businesses incur expenses for supplies used in operations as well as products purchased for resale. Manufacturers purchase raw materials for manufacturing, while distributors and retailers purchase finished goods for resale.

These trade channel members and other business organisations also purchase operational supplies such as paper, computers, and software. The inability to obtain supplies and products at a reasonable price is a significant constraint to economic profit.

The greater your bargaining power as a result of your size and customer base, the better your chances of achieving low costs.

 

Manufacturing Processes

To prepare products and services for customers, businesses typically have production or operational processes in place. This entails converting raw materials into finished goods for manufacturers.

This typically includes storing, transporting, and promoting products to customers for resellers. It is critical to be able to perform these production processes efficiently and cost-effectively. Production constraints include labour costs, which are influenced by the availability of skilled labour and the capacity of available equipment. Production systems and workflows that are optimized also help.

 

Size of the Market

Larger customer markets typically result in increased sales volume and revenue. Furthermore, a larger customer base allows you to buy in larger quantities from suppliers, which improves your economies of scale or cost per unit. While you can choose which markets to pursue, the strengths of your offering and the level of competition limit your ability to enter certain markets.

 

Demand

Along with a large market, you must generate customer demand to achieve revenue and high price points. This necessitates the creation of a compelling value proposition as well as effective promotional messaging. Budget constraints are a significant barrier for small businesses attempting to attract customers. Furthermore, if your market has a large number of strong competitors, your ability to attract a large number of customers to dictate high prices and revenues is limited.

 

Final Offers

When a buyer proposes, he has the option to accept, reject, or counter the potential buyer's offer. This can go on indefinitely, but it usually ends with either the seller or the potential buyer delivering a best-and-final offer. At this point, both parties must decide whether to accept the offer or pursue other options.

Selling a business is a time-consuming and emotional endeavour for many people. A compelling reason to sell or the presence of a "hot" market can alleviate the burden, as can the assistance of professionals.

After all, is said and done, the large sum of money in your bank account and your newly discovered free time will make the arduous process seem worthwhile. 

Simplified Marketplace is a digital platform where you can seamlessly register and connect with buyers and successfully sell your business without the traditional hiccups. For further information, please contact us today.

 

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