Gaining a Clear Picture of a Distressed Business

Gaining a Clear Picture of a Distressed Business

Distressed business expert Howard Brownstein is a wealth of information on the topic of distressed businesses in general and how brokers and M&A advisors can go about working with distressed businesses. The simple fact is that distressed businesses represent a sizable, and often overlooked, opportunity.

It is important to remember that no two distressed businesses are the same. You need to understand the causes behind why a business is finding itself under stress. Armed with this information, you can begin to work towards “stopping the bleeding.”

Another key point Brownstein makes is that there are many buyers that simply won’t even consider a distressed business. However, it is your job to provide education regarding why a specific business is a good (or even excellent) opportunity.

Distressed businesses do represent a myriad of unique options for potential buyers. One good example of an interesting option that distressed businesses afford buyers is the possibility to pick and choose assets. While this can get complicated, it is possible for them to buy specific assets. Yet, this does come with a word of caution, as it is critical to remember that when a buyer goes this route, they may also be buying the liabilities of the company as well. Simply stated, those pursuing this option will want to have very tight legal advice.

Brownstein further notes that selling a distressed business means taking the “storytelling” aspect of selling a business to a whole new level. With a distressed business, brokers are not only disclosing where the company is today, but also where the company used to be. Then, very importantly, they must tell the story of what the company could be in the future. A key part of a broker’s job when representing a distressed business is to clearly articulate the future vision of the business. You should always be thinking, “Where will this business be in the future with the right management and financing, and how can I convey this information to prospective buyers?”

All of this points to the fact that you absolutely must understand the core reasons for the distresses. Without a proper and detailed understanding of why the business entered a state of distress in the first place, it is impossible to clearly articulate why the business will potentially be valuable in the future. It is essential to be able to convey “what went wrong” and how the problems can be fixed.

Ultimately, Brownstein wants business brokers and M&A advisors to understand that simply because a business is under distress that does not mean it lacks real value. While selling a distressed business may mean adopting a more offensive than defensive posture, these types of businesses have the potential for sizable commissions.

It is quite likely that there will be more distressed businesses for months, if not years, to come. Forward-looking and adaptive brokers will be well served by seriously considering adding some distressed business clients to their rosters in the future.

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