Selling a business that’s not profitable? Sounds like a tall order. But, while selling a business that’s in the red is tough, it’s also entirely possible.

Many small business owners face financial challenges from time to time, but that doesn’t mean their businesses have no value. With the right approach, creativity, and strategic planning, your business can attract buyers who see the potential.

So, can you sell a failing business? The answer is yes.  While it can be more difficult to sell a business without profits, there are certain steps you can take to increase your chances of a successful sale.

This article outlines how to take a struggling business and sell it to a new owner who’s ready to take it to the next level. Keep reading to learn more, and get in touch with the team at Transworld to discuss buying or selling a business that’s not profitable.

Why Would Someone Buy an Unprofitable Business?

When selling a business, it’s natural to assume that profitability is the key factor attracting buyers. That’s not always the case. Many buyers are looking for a strategic acquisition, where they gain access to assets that align with their business objectives, such as intellectual property, supplier relationships, or an ideal location. Others focus on customer base acquisition, purchasing a business specifically to expand their market share and gain immediate access to a loyal clientele—even if the company itself is currently operating at a loss. 

Here are three specific reasons a buyer would be interested in a business that’s not profitable:

1. Buying for Strategic Value

Buyers often look beyond profitability to see the bigger picture, valuing aspects like an established customer base, proprietary intellectual property, or a prime location. These assets provide immediate benefits and can act as a foundation for future growth. For example, a desirable location or exclusive customer relationships might give the buyer a competitive advantage, making these assets more valuable than the company’s current financial performance.

2. Turnaround Potential

For experienced buyers, an unprofitable business can represent a golden opportunity. These investors specialize in identifying operational inefficiencies and restructuring businesses to turn them around. By cutting unnecessary expenses, streamlining processes, or revamping the business model, they can unlock untapped value. 

In fact, some buyers actively seek out failing businesses because they see potential whereas others see challenges, making them ideal candidates for sellers looking to offload struggling enterprises.

3. Industry Synergy

Synergy is another driving factor for buyers. Businesses that complement an existing operation — whether through vertical integration (expanding along the supply chain) or horizontal integration (acquiring a competitor) — can bring significant value. Acquiring businesses like these can lead to cost savings, enhanced market reach, and a stronger position in the industry. For example, a buyer might acquire an unprofitable supplier to gain more control over their supply chain, reducing costs and ensuring stability.

3 Steps: How to Sell an Unprofitable Business

To sell an unprofitable business, you need to make it appealing to the perfect buyer. If you focus on getting organized, highlighting key assets, and seeking professional help, you can maximize the value of your business and attract serious offers. Here’s how to get started in three steps:

Step 1: Organize Financial Records

No matter how much your business has struggled, you always want to present clear and transparent financial documentation. Buyers want to understand the full picture, including debts, assets, and cash flow statements. Organized records demonstrate professionalism while also building trust with potential buyers. 

Make sure your financials are up-to-date and include details about any liabilities or pending obligations. Transparency goes a long way in addressing concerns and positioning your business as a credible investment.

Step 2: Assess the Value of Intangible Assets

Intangible assets can add significant value to struggling businesses. Highlight elements like brand reputation, customer loyalty, and proprietary technology or patents. For example, a well-recognized brand or a devoted customer base can provide immediate opportunities for growth to the right buyer. These factors often hold more weight than current profitability and are sometimes the deciding factor in attracting buyers who see long-term potential.

Step 3: Work With a Business Broker

Given the complexity and inherent challenges of a distressed business sale, it only makes sense to partner with an expert. Brokers bring expertise in business valuation for distressed companies, ensuring sellers present their businesses in the best possible light. They also offer access to a large network of potential buyers—some of whom specialize in acquiring struggling businesses. As an added bonus, brokers can negotiate favorable terms and streamline the overall selling process, saving you time and reducing stress. In short, a skilled business broker understands how to position your business to highlight its strengths, even in tough financial times.

How Do You Value a Business That’s Not Profitable?

Valuing a business that isn’t profitable requires something other than traditional methods. While profitability is often a key factor in valuation, there are other ways to demonstrate value and appeal to potential buyers. By focusing on tangible and intangible assets, earnings adjustments, and market trends, you can present a compelling case for your business’s worth. Here’s a look at three approaches:

• Asset-Based Valuation: One of the most straightforward ways to value an unprofitable business is through its tangible assets. This involves calculating the value of physical assets like equipment, inventory, and real estate. In many cases, the liquidation value (what the assets would fetch if sold quickly) serves as a baseline for valuation. This method, often referred to as net asset value, is especially effective for businesses with significant physical resources or infrastructure. While it doesn’t account for future earnings potential, it provides a clear and concrete starting point for buyers.
• Earnings Adjustments: Even if your business is currently unprofitable, it’s possible to present a more optimistic financial picture by making earnings adjustments. This involves identifying and adding back discretionary expenses, which are costs that were not essential to running the business. Good examples include excessive owner salaries, non-business-related perks, or one-time expenditures. By also adjusting for non-recurring costs (like unexpected legal fees or temporary downturns), you can highlight what the business might look like under normal circumstances. These adjustments help buyers see the potential for profitability once those factors are removed.
• Market Trends and Comparable Sales: Another effective method for valuing an unprofitable business is to analyze market trends and comparable sales. By examining recent sales of similar businesses in your industry, you can better understand how your business stacks up in terms of value. Look at industry benchmarks and multiples (like revenue or asset multiples, for example) to guide your valuation. This data not only provides context but also supports realistic valuation expectations, giving buyers confidence in the potential of your business.

Many would-be sellers aren’t familiar with these approaches to valuing an unprofitable business, and it stops them from fully exploring their options. This is yet another reason to consider working with a business broker — someone with deep experience selling unprofitable businesses who can provide expert guidance and support. 

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Find a Transworld business broker in your area for help selling a business that is losing money.

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Alternative Strategies for Selling a Business That is Losing Money

It’s time to get creative when answering the question: Can you sell a business that is not profitable? If traditional sales methods don’t seem viable, these alternative strategies can help you unlock value and secure a deal.

Seller Financing

Offering seller financing can make your business more attractive by lowering the upfront financial barrier for buyers. By acting as the lender, you provide flexible payment terms, which can widen the pool of potential buyers. This approach not only demonstrates your confidence in the potential of your business, but it also increases the likelihood of securing a higher selling price. Seller financing is especially effective for buyers who see value in your business but lack immediate access to traditional financing.

Partnering or Merging

If selling the entire business outright isn’t feasible, consider partnering or merging with a financially stronger company. Selling partial equity to an investor or merging with another business can infuse capital, resources, and operational expertise. This strategy addresses financial challenges and also creates a pathway for future growth under shared ownership. For example, a strategic partner may bring economies of scale or complementary capabilities that enhance the value of the combined operation.

Selling Assets

When the business model is no longer viable, a liquidation sale can provide an immediate financial return. This approach involves liquidating tangible assets like equipment, inventory, or real estate. You can also sell parts of the business while retaining ownership of other areas. This is commonly done with product lines or intellectual property — sell it to keep control of the rest of the business. This strategy allows you to recover value even if the business as a whole isn’t sellable.

Selling to Competitors

Competitors may be highly interested in acquiring your business, even if it’s losing money. They may see value in your customer base, location, or brand as a means of expanding their own market share or simply eliminating competition. Approaching competitors as potential buyers can lead to a mutually beneficial transaction. For example, a competitor might purchase your business to access your loyal customers or integrate your offerings into their existing operations.

Related: Selling Your Business to a Competitor

Take the First Step Toward a Successful Sale with Expert Guidance

Can you sell a business that is not profitable? Yes, it’s possible to sell a struggling business, and it can also be a strategic and rewarding process — with the right approach.

At Transworld Business Advisors, we use our 40 years of experience and proven track record in middle-market business sales to help owners navigate even the most complex situations. We handle all aspects of the sale, including cutting through the red tape, negotiating, finding the right buyer, marketing the business, and more. 

Our team of brokers backed by a global network, ensures you get the support and expertise you need at every step — even if your business is unprofitable.

Take the first step toward a smooth and successful sale by partnering with Transworld Business Advisors. Contact us to speak with a business broker who can help you achieve your goals with confidence.

Selling an Unprofitable Business: FAQs

Selling an unprofitable business is challenging, but it’s far from impossible. Below, we address some of the most common questions we hear to help you better understand the process.

Can you sell a business that loses money?

Yes, you can sell a business that is losing money. Buyers are often interested in opportunities beyond profitability, like your customer base, intellectual property, or market position. With the right strategy and preparation, even a struggling business can find the right buyer who sees its potential.

Can you sell a business with debt?

When you’re wondering how to sell a business with debt, know that it is absolutely possible. In these cases, the debt is typically addressed during negotiations, with buyers factoring it into their offer or assuming certain liabilities. Sellers should work with professional advisors to ensure transparency and a structure that meets both parties’ needs.

What happens to debt when selling a business?

When selling a business, debt is usually handled in one of three ways: the seller pays it off before the sale, the buyer assumes the debt as part of the agreement, or the debt is negotiated into the sale price. In some cases, business debt restructuring can make the company more appealing to buyers by reorganizing outstanding liabilities into more manageable terms. The specific approach depends on the deal structure and the type of debt involved. Work with a business broker to understand how to manage debt successfully during a transaction.

Helpful Links:

• Finding a Business Broker
• What Is My Business Worth?
• Selling a Business FAQs

Read more about selling a business:

• How to Build the Right Team to Sell Your Business
• Selling a Business Timeline: How Long It Takes & What to Expect
• 10 Strategies to Maximize Business Value Before Selling