Selling your business can be an effective way to deal with business debts. However, it may not always be possible to find a willing buyer. Read on to learn more about the pros and cons of selling your business and when it is a viable option.
(To learn about other non-bankruptcy options for dealing with small business debts, see Alternatives to Bankruptcy for Small Business Owners.)
When Is Selling Your Business a Viable Option?
In order to sell your business you must first find a buyer. Whether someone will be willing to buy your business depends on its profitability, assets, liabilities, and overall market conditions. If you have a profitable and reputable business with assets in excess of liabilities, you should have no problem finding a buyer under most circumstances.
(To learn more about selling a business, see the articles in Buying or Selling a Business.)
When Is Selling Your Business Not Viable?
There are many reasons you may not be able to find a buyer for your business. If your business has consistently been losing money, has more debts than assets, or if the market conditions are not right you may have a hard time finding a buyer to invest in your business.
Even if you find a buyer, selling the business may not be in your best interest. If you are personally liable for the obligations of the business, selling it will not get you off the hook unless you pay off the debt or the creditor releases you from liability. (To learn when you might be personally liable for business debts, see Are You Personally Liable for Business Debts?)
Benefits of Selling Your Business
There are many benefits to selling your business as opposed to liquidating it or filing for Chapter 7 bankruptcy.
You Can Sell at a Higher Price
A business sold as a going concern (an active business that will not be liquidated in the foreseeable future) will generally be worth more than if you try to sell its assets individually at liquidation prices. As a result, selling your business will likely bring in more money to pay off business debts and may leave you with more cash in your pocket.
Selling Can Be Simpler Than Liquidating
Dealing with one buyer is usually easier than trying to sell multiple assets to different buyers. Selling your business as a whole also gives you more options for dealing with business debts. If the buyer has money, you can get one lump sum to pay off all business debts.
Alternatively, the buyer may wish to pay less but assume some or all debts of the business. However, keep in mind that if you were personally liable for certain debts, your obligation will not be eliminated unless the creditor agrees to release you.
Disadvantages of Selling Your Business
Below, we discuss some of the drawbacks of selling your business.
You May Have Trouble Finding a Buyer
Most people buy a business because it is profitable or has valuable assets. If your business is not making money or has more debts than assets, you may have a hard time finding a willing buyer. If you cannot find a buyer, you may have to negotiate with your creditors and liquidate the business.
Your Personal Liability Is Not Eliminated
If you are personally liable for business debts, selling the business does not eliminate your liability. The buyer may agree to pay some or all of the business’s debts but you are still on the hook unless the creditor agrees to release you. As a result, the creditor can still come after you if the buyer fails to pay.