7 Tips for Selling your Business While in Bankruptcy
Opting to sell your business during bankruptcy can enhance your ability to maximize the return for your creditors while potentially securing proceeds, as the company retains a value over its liquidation price to interested buyers. By collaborating with M&A firms to identify investors who perceive a higher value in your business, you may also improve your chances of obtaining bank support, as you demonstrate efforts to maximize the recovery of funds. Selling a business while in bankruptcy can be a complex process. However, it is possible to achieve a successful sale when you follow the following advice from our company President, Randy Rua.
Opting for bankruptcy paves the way for a revitalizing fresh start, providing an opportunity for a new buyer to revitalize the venture. They are able to acquire valuable assets, seize a loyal customer base, and seamlessly continue operations – all while shaking off any burdensome liabilities.
1) Work with a bankruptcy lawyer. Find an experienced lawyer to help you navigate the complex court approval process, and ensure a smooth and efficient sale, from initiation to completion.
2) Get a valuation of your business. Consult with an M&A firm to discover the value of your customer base and contracts, considering their potential worth to buyers. Additionally, prioritize appraisals on equipment and real estate, and recognize the significance of employees as valuable assets in the valuation process. A lot of buyers are willing to buy a bankrupt company because they get access to the employees and customer and vendor relationships an acquisition versus having to build from scratch. These things can have significant value to the right buyer.
3) Be informed of the two primary methods in bankruptcy to disclose information to prospective buyers. In a private party transaction, the court publicly reveals the agreed-upon terms after approval, thereby informing all potential creditors. The other method, the stalking horse process, involves a primary bidder submitting a purchase proposal, which becomes public for others to potentially outbid. To compensate the stalking horse bidder for their efforts, they receive a fee if someone outbids them in the end.
4) Work with an M&A firm that understands how to market your business. Find someone to translate the value of your business’s intangible and tangible assets to the market by effectively communicating your business’s worth and showcasing its unique strengths in the market.
5) Be prepared for this process to move quickly. You will need to give the bankruptcy court a timeline, and the goal is to have it done as fast as possible. An average sale of a company can take up to a year, but under these circumstances, it is better to move swiftly and target 60 to 90 days. Having an M&A firm that knows how to build a good data room and collect the information the buyers are looking for to have it ready to go helps move the process along and cut back on the back and forth. Furthermore, having all the purchase documents ready at the beginning greatly speeds up the process.
6) Choose to continue operating your business. The optimal scenario for a business encountering bankruptcy is to secure approval from the court to proceed with operations. This increases the company’s worth compared to a non-operational firm. The court may permit a limited time window, such as 90 days, for the company to find a buyer who can afford to keep it afloat, thus benefiting both parties involved. Navigating the delicate balance between operational continuity and potential value loss is crucial. Determine the timeline and weigh the potential financial setbacks of continuing, versus instantly ceasing operations.
7) Be prepared to answer questions. If your business is going bankrupt, be prepared to get the answers to the following questions to ensure the sale goes as seamlessly as possible.
- What is the value of my business?
- What are the assets and liabilities of my business?
- What is the status of my bankruptcy proceeding?
- What are the terms of the bankruptcy court’s approval for the sale?
- Who are the potential buyers for my business?
- What are the terms of the purchase agreement?
- What are the tax implications of selling my business in bankruptcy?
- How will the sale proceeds be distributed among creditors?
- What are the risks associated with selling my business in bankruptcy?
Selling a business that is going bankrupt can be a daunting task, but it is not impossible. By following these tips, you can maximize the value of your business, find a suitable buyer, and ensure a smooth sale process. Remember to be transparent about your situation, find an M&A firm that is prepared to handle the sale of your business, and work quickly through the process. By taking the right steps, you can emerge from this experience with a sense of relief and the ability to move forward in your business and personal life.
If you need help with selling your business while in bankruptcy, NuVescor can help. Click here to get in touch with us.