Opportunities in struggling businesses

There is a variety of reasons why a business may be distressed and the fact that one is facing insolvency does not by itself mean that it is not worth considering.

An otherwise profitable business may have faced bad debts, the loss of one or more important contracts or been under the guidance of poor management.

In such cases, there might be a great opportunity waiting for the right investor or entrepreneur, who would be presented with two options.

The first would be to buy the assets, often from the insolvency practitioner, and the alternative would be to purchase the shares of the company.

Both routes have their own risks and rewards.

Asset purchase is often the preferred choice when seeking a quicker financial return.

Time constraints often see these types of deals completed in a matter of days. However, this means that it is unlikely that there will be time to complete the full due diligence process.

Share purchase is often better suited for buyers able to commit to a longer-term involvement in the business.

Other factors to consider include whether you are looking to expand your operations or take the competitor out of the market.

Whether there be gaps left when the current management leave, and if you are able to fill them.

Timing and budget are also key, as the biggest discounts on valuation are often to be found pre-insolvency.

Ultimately, you should only buy a struggling business if you understand exactly why the business is currently in trouble and you have a clear strategy on how to turn it around. Expert advice is essential.