Loss Making Businesses
All businesses run into problems at some point or the other. If you've hit a loss making year, that's not the end of the world - you buckle down and resolve to do better next year. However, there are sometimes clear indications that losses are likely to persist or that the business cannot be turned around. The earlier you recognise this, the sooner you can start taking action and the larger the price you will get for the remaining assets of the business.
And that brings us to the assets. The assets themselves have value and you can sell the assets of the business on their own (as an alternative to selling the shares). Selling shares and selling assets are explained in more detail here. Ideally, you want professional advice through any such restructuring or disposal. There are several potential traps. For example, if the business is "technically" insolvent, selling the assets off could land an owner in serious trouble.
So how do you go about finding a buyer. You could advertise the business for sale online, of course but, given that there are not a lot of buyers looking specifically to buy just business assets, it may be worth identifying potential buyers yourself and making the approach directly or through a business broker.
But what if there are no assets or the assets are of minimal value. You are then left with just the accumulated losses which can be converted to cash. However, HMRC are not keen on businesses doing this and the law places several hurdles in the way of a business owner who wants to sell his losses. Please see our explanation here on how to value such losses and what the law says about utilising such losses by selling them to another firm.
When a business runs into financial difficulties, there are often ways to tackle those problems and restore the business to profitability. It may require a fresh injection of capital or some new blood. However, if there is no management appetite to turn the business around, management need to act swiftly once they realise the business is insolvent. It is a legal requirement for directors to not trade while insolvent.
There are several other responsibilities that fall on directors in an insolvency situation. For one, they can't prefer any creditors over any others. So if the company owes money to a director in the form of a director loan, such monies cannot be extracted prior to filing for insolvency.
However, there are several options to convert the existing assets and goodwill into cash and professional expertise is available to assist. Our article on selling the insolvent business may be a good point to start research.