Think Twice Before Selling Your Business From a Crater

Are you trying to sell a business? Or are you trying to sell a problem?

I have had two conversations recently with business owners who were thinking about selling their companies. The circumstances were different, but they had one important thing in common: both owners were exhausted.

In the first case, the owner had been struggling for a long time. An offer came along, and she took it. I understand why. When you have been shouldering the weight of a business for years, and somebody finally gives you a way out, the relief can feel almost as valuable as the money.

I am not suggesting she made the wrong decision. I don’t know that, and in fairness to her, she had been overwhelmed for a long time. But the situation reminded me of how difficult it is to separate the value of an offer from the value of being done. When you are tired enough, you may not just be selling your business. You may be trying to sell your problem.

The second situation involved the owner of a manufacturing company that has existed for about 30 years. The business is in a rut: Revenue is down, the owner is tired, and he fears taking on more debt. Selling has started to feel like an increasingly desirable option.

My advice was to avoid that decision for now. A 30-year-old business going through a bad stretch is not necessarily a bad business. Something fundamental may have changed, and if it has, he needs to understand that and deal with it. But businesses don’t move in straight lines, and manufacturing companies in particular have working-capital cycles. Before deciding to sell 30 years of value from a crater, I encouraged him to steady the company first.

That means making the difficult expense cuts needed to size the business properly for its current revenue. It also means using his line of credit if the business can support it. He is understandably nervous about adding debt, but this is one reason a manufacturing company should have a line of credit in the first place. Inventory, receivables, and cash don’t always move in perfect synchronization. A line of credit can provide breathing room while the business works through that cycle.

There is an important distinction here. I would never suggest borrowing money to postpone the inevitable. If the underlying business no longer works, adding debt can turn a difficult situation into a much worse one. But there is a big difference between debt that buys a fundamentally sound business some time and debt that keeps a broken business alive for another few months.

The goal isn’t to save the business at all costs. The goal is to create enough breathing room to figure out what is actually happening. If he cuts expenses, uses the resources available to him responsibly, and gets the company stable again, he may still decide that after 30 years he is ready to sell. There is nothing wrong with that. But ideally he will be making that decision from a very different place.

There is an obvious financial reason to try to avoid selling in the middle of a crisis. Buyers don’t generally pay you based on what your company used to earn or what you think it will earn again. They look very closely at what is happening now. If revenue is falling, margins are compressed, and you desperately want out, you are negotiating from a very weak position.

There is also a human reason, and it may be even more important. Exhaustion changes the math. When you have been fighting for a long time, the value of being finished keeps going up. An offer that might have disappointed you a few years earlier can suddenly look better because it comes with something you desperately want: relief. You start imagining waking up on Monday morning without having to worry about payroll, without customers calling, without employees needing answers, or without another cash-flow problem waiting.

That relief has real value. But if you aren’t careful, you can give the buyer a steep discount in exchange.

Sometimes selling your business is absolutely the right answer. But if you can help it, don’t make that decision from the bottom of the crater. Stabilize the business, regain your options, and then decide whether you really want to sell or whether you’re just trying to end a crisis.