Distressed sales are they a bargain or not?

Let me first discuss what a distressed sale is? It is basically the sale of a business where for whatever reason the seller wishes to dispose of their business quickly, and are willing to do it for a “cheap” price.

So are they a bargain?

Well it really all depends on the reason for the sale. If the reason for the sale is due to the fact that the seller was involved in an accident which means that they are unable to run the business the same way, then perhaps as a buyer you should be looking at that business in more detail.

Sometimes though the reason for sale is negative, and this is not a good sign.

Business Owners sometimes contact a business agent/broker to sell their business and have the attitude that if they don’t sell their business then they will simply close it down. Under these circumstances the business is not worth anything, because why would you simply throw away an asset worth £20,000 if it really was worth £20,000.

Other businesses that seemingly look cheap may have fundamental flaws in one aspect. Examples of this are retail or leisure based businesses where the major asset is their location. For a retail unit it has been said time and time again that the three most important things to consider is location, location and location.

So if you are considering purchasing a retail shop that was priced at £50,000 and is now priced at £10,000 this may not be a bargain at all. Simply for the reason that the location is such that it would be very difficult for you to make a profit at all. Here you would simply be throwing away this investment.

Often, you see a shop open and soon afterwards they close. Why is this? Simply because the business owner started the business without carrying out the slightest market research at all.

So perhaps another red flag is when a seller wants to sell a business soon after buying or establishing that business.

In conclusion then is a distressed sale a bargain?

The answer is it depends on the reason for sale, if the reason is due to the misfortune of the seller due to unforseeable personal circumstances then perhaps yes.

But so many or the cheaper businesses on the market if they don’t sell, will simply close down due to a fundamental flaw. Here is it best to not touch it with a barge pole, as the owners are just looking for someone who is just as big fool as they to take over the business and bail them out from their bad mistake.

This entry was posted on 20/01/2009 at 02:10 pm and is filed under Buyers, General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.