Will Venture Capitalists Buy Your Failing or Insolvent Business?

Will Venture Capitalists Buy Your Failing or Insolvent Business?

Anyone looking to buy an insolvent company will have to tread carefully. The fact that your business has entered into administration or liquidation means there are severe financial problems that need to be resolved. There might be pressure from creditors and suppliers, or debt problems to be cleared up before an insolvent company can make a profit. However, in recent years there has been a rise in so-called ‘turnaround investors’ who understand that ailing businesses can still present a good investment.

There were 3,000 company liquidations in England and Wales in the third quarter of 2014. A good proportion of these businesses would have been offering valuable products or services, but came unstuck as a result of cashflow problems or management issues that could not be resolved.

In this post, we shall explore how you can paint your insolvent company in the best possible light to attract venture capitalists and achieve the best possible resolution for you and your business.

Buying a business in administration or liquidation

A business enters into administration when it is struggling financially and has been threatened or issued with legal action. At this point, control of the business is handed to administrators, who work to protect the creditors’ best interests. If the business can be sold, this may allow it to continue trading; helping to safeguard jobs and maintain existing contracts.

In this case a pre-pack administration can provide an excellent solution for you and your business.

In the case of liquidation, the business cannot be sold as a single entity but investors can still buy the company’s assets, such as premises, vehicles or inventory.

Attracting venture capitalists

For a deal to be suitable for venture capitalists and you and your business, there must be mutually beneficial elements to the transaction. You (the seller) will receive outside investment, while the investor will expect a return on his/her money. However, to achieve the very best deal for you, it is important, despite the situation, not to blindly accept the first offer you receive.

Whether there are a number of interested parties, or just one, it’s important to prepare and supply the necessary information you need to show the true value of your business.

Here are a few practical steps you can take:

Identify and rectify the problem

You can’t expect anyone to invest in a failing business without first identifying the cause of the failure. It might have been one disastrous event or a number of smaller financial mishaps, butit’s essential you do not try to hide your business’ problems.

Whether it’s bad debts or employee claims, it’s essential you’re transparent in all your dealings with potential investors or they’ll simply pull the plug on the deal.

Highlight the value in your company

An investor can choose to buy into in a failing business before the administration process, or wait for an administrator to be appointed to potentially buy it more cheaply. Your role in this process is crucial. By demonstrating the value in your business, you can help to secure the most favourable resolution for you and your business.

There may be value in the current structure of your business, and this could be more easily maintained if a failing business is bought before a formal insolvency procedure begins. There may also be valuable ongoing contracts your company is servicing, which could be lost if an insolvency process begins.

Maintain accurate financial information

Being able to provide a prospective buyer or investor with up to date and accurate financial records and forecasts will be a huge benefit for potential purchasers and provide the reassurance they need.

Encourage management buy-in

A company will be easier to turnaround if it has a unified and committed management structure that is dedicated to making it work. Once the cause of the problem has been rectified, a loyal and devoted board can drive the business forward to get it quickly back on track.

If you would like more information about how a pre-pack administration can help you achieve the best solution for you and your business, speak to one of our specialists by calling 08000 746 757 or emailing: info@companydebt.com today.

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