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  Thailand Articles

15 Feb 2008 20:31:10 GMT

How to Sell a Troubled Business

OK, let’s confront our worst nightmares: You awaken one morning to the realization that the business you've poured so much time, energy and thought into; the dream that was once the preoccupation of your every waking moment…has turned sour. Gone south. What do you do?

Market forces, changing consumer tastes, cash flow or health problems, or some unforeseen outside factor has brought you to the point of not being able to keep things going much longer. Do you shut the doors and call it a day, liquidate your assets, declare bankruptcy? All of these options may have to be considered but the fact that you might not be able to turn things around does not necessarily mean that your business isn't valuable.

If your business is failing, tough decisions that will affect you, the lives of your employees, and your relationships with vendors and creditors, need to be made. At the best of times, making objective decisions about something so close to you, something that you've put so much thought, energy, planning, and dreaming into, can be difficult. Trying to make decisions under conditions like these make it extraordinarily difficult.

Despite how hopeless things may appear at such a bleak moment, though, oftentimes failing businesses can find buyers. There are actually people and companies out there looking for opportunities to acquire failing or troubled businesses.

Here are seven good reasons why a buyer may seriously consider purchasing your business:

1.  The buyer may already have an existing business like yours and, by combining the two, be able to operate at lower cost.

2.  The buyer may seek to acquire any number of your operating assets, such as desirable customer bases, complementary product lines, proprietary technology, key locations, staff, name, URL, or other tangible or intangible assets.

       3.  The buyer may have expertise in restructuring or repositioning businesses, and has a plan to make your business profitable either by streamlining operations or through integration with their existing companies.

4.  The buyer may decide that it is more feasible to acquire your business, to invest in it and make it successful, than it would be to build a comparable business from the ground up.

5.  The buyer may have sufficient finance sources to carry the loss until your business becomes profitable.

6.  The buyer may have lower financial expectations and feel that, with minor cutbacks and a small investment, modest profits are achievable.

7.  The buyer may be looking for a loss to offset taxation obligations.

The opportunity of a sale may, however, give rise to other issues that need consideration. It's very likely that by this point, in an effort to keep things going as long as possible, you've incurred some personal liability for your business debts. You may even have pledged some personal assets as security. If the proceeds of selling your business won't be enough to pay off all your creditors in full, then you'll still be personally liable for the previous arrangements that you made. If this is indeed the case, then there are options available to protect your interests and personal assets.

A 'friendly' buyer may be willing to assume your personal liability. Ask your creditors if they are willing to transfer the indebtedness to the buyer of your business. The creditor may be responsive to this if the buyer has a stronger financial position than yours.

With an unsecured debt, the buyer may be willing to pledge property, or any number of collateral assets, effectively securing that debt, and eliminating your personal liability. Obviously, for this to make sense, your buyer must have assets of sufficient value - in most cases, assets of greater value than the unsecured debt itself.

If the creditor will not allow the buyer to assume your personal liability on the debts of the business, you can still have a written agreement with the buyer stating that they will pay the specified debt, and that they will indemnify you from those obligations. Lenders are always eager to have additional people on the hook. The advantage to you, in such an arrangement, is that you will no longer be primarily responsible for the debt, although you will remain secondarily responsible. Should the buyer not make good on the debt then the creditor will retain the right to hold you responsible for any amounts left owing.

If you have pledged personal assets to secure a debt, you may want to see if the buyer is willing to substitute their property as security in order to allow the creditor to release any liens on your personal assets. You'll need both a cooperative buyer and a cooperative creditor for this to be workable.

None of these solutions are standard options, but rather strategies that you may want to look into. Each business deal has its own dynamic and creates its own unique set of challenges and solutions. Getting to the right solution, the one that works best for all parties, is a challenging, time-consuming process.

Nobody said it would be easy to sell your business, especially at this juncture. The value a buyer is willing to put on your business may not be in line with your own estimates. In negotiating the sale there are several areas to stress.

1.  Never let your ego get in the way. Don't make excuses and don't confuse the failure of the business with personal failings.

2.  Allow the buyer to focus on the upside - their notions of unrecognized potential, room to reorganize and ways to rebuild.

       3.  Consider your personal exit strategy in terms of indemnity and liability as well as the cash that is being offered.

In some cases the kind of sale we have discussed might not be workable, or there may be simply no prospective buyer available. If such is the case, you may want to consider closing the business and not running up any more debt. You should also consider negotiating with your business creditors in order to come up with some settlement. They will usually prefer partial payment over the alternatives - either suing you, which is costly and not necessarily effective, or waiting to take a smaller percentage of your bankruptcy liquidation.

A settlement with creditors can protect your subsequent credit worthiness and your personal assets. If your corporation or LLC has debts that you have personally guaranteed, most creditors are more likely to take a percentage of what's owed, rather than looking to seize your home, car, or stock certificates. They will most likely not want you to go personally bankrupt. It takes too much time, and again they are likely to receive a smaller percentage. In conducting your negotiations you should keep in mind that an amicable settlement will benefit all parties in the long run.

Filing for any type of bankruptcy is likely to be problematic for all concerned. The process will not be friendly, nor take into account any goodwill you may have with your creditor. Your credit worthiness may be damaged for years to come. Bankruptcy is an option that should be looked at only with the assistance of expert legal counsel.

The best way to ensure that all options have been looked at and the best course of action chosen, is to seek expert advice. An expert advisor can guide you through the process, assist you in evaluating the worth of the company and its assets, both tangible and intangible, advise on various tactics and may even know of potential buyers currently looking for your type of business.

Through it all, keep in mind that the key to navigating your current difficulties is to keep a cool head, think clearly and seek out the experts who can help you the most.

The attorneys and accountants at Sathienraphong-Evans Law & Accounting Co., Ltd, part of the Evans Marketing team are expert Thai law and accounting well versed in navigating through the legal processes involved in this process locally. The lead attorney, Khun Sathienraphong Khumnon, has 15 years experience practicing law in Chonburi Province, and is one of the most well known and highly respected attorneys in the country.


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