Mind Your Business: The Distressed Sale

By Steve Michaels

November 2008

Q. I recently picked up some accounts from a competitor who just shut his doors and walked away.  I know he had many more accounts.  Even in a distressed sale, don't these accounts have any value?

A. Absolutely.  It continues to flabbergast me that this continues to happen.  Yet we all have different stress levels resulting from things such as a death in the family, an IRS tax lien, a major lawsuit, or a natural disaster.  At some point, people just shut down, but no matter what the reason is, the accounts have value, even in a distressed sale.

Individuals who are thinking logically might wonder why someone would walk away from a pile of cash, represented by the value of their client base.  Most of those who do close without warning are going through tremendous stress.  They can't see their way to take one more step, so they just give up, lock their doors, and walk away.  The laborious transaction of selling their business seems like more than they can handle. 

If you are the seller in a situation like this, there are several ways you can let your business go with a minimum amount of work on your part.  One option is to call your attorney and simply give them your customer list, instructing them to call all your local competitors.  Whoever comes up with the highest bid, gets the accounts.  Alternately, you could rely on an industry broker or a trusted industry friend to do this.  All it takes is a phone call. 

Buyers must realize that whatever caused someone to walk away from their business is a heavy burden.  Buyers need to be as compassionate and accommodating as possible.  They should realize that due diligence may not be as thorough as usual, but knowing that they are picking up accounts at a discounted rate, some risk may be required.

There are several ways to purchase those accounts.  One is to offer the seller X times the amount of their monthly billing and offer to pay for it thirty to sixty days after the accounts have transferred.  Another idea is for the buyer to pay a percentage of the monthly billing (or collections) for a certain period of time.  A third option would be to offer a lump sum, which might be preferable to the seller because of their difficult situation.  While it may be tempting to just take the accounts and not pay anything, treat the seller the way you would like to be treated. 

If you own a call center, you may want to set up a contingency plan with your lawyer, family member, broker, or trusted industry peer, so if you suffer such a disaster, you will have the bases covered and receive something for your many years of effort.

Steve Michaels is a business broker with TAS Marketing and can be contacted at 800-369-6126 or tas@tasmarketing.com for questions.