When the Business is Losing Money: Addressing Equity and Capital Issues

May 25, 2017Financial Integrity

Running a business mirrors riding a roller coaster. We all weather the ups and downs with the zeal and forward momentum of a racing car. The only difference is we don’t have an established track, forcing us to evaluate turns as they come up and chart our own path forward.

Sometimes, the track falls out from underneath us.

Either due to changing market trends, adjusted regulations, policy shifts, large debt, or risks that didn’t pan out, we find our business in a lurch. The most identifiable symptom boils down to money; the business is running in the red or needs more capital to sustain growth. These situations lead business owners to our doors at Exit Consulting Group looking for ways to raise equity or pursue an exit.

While limited, businesses in these situations do have multiple options.


Limited Partnership or Joint Venture

Just because you’re having cash flow problems doesn’t mean the business model isn’t valid or can’t grow exponentially down the road. Particularly right now we’re seeing viable businesses caught in the cross hairs of the transition between administrations. Different regulations, subsidies and policies changed the market landscape overnight. Given a longer runway, and the cash to pivot, these businesses will bounce back.

Strategic partnerships or joint ventures can build that runway. To journey this road, pursue strategic partnerships or even approach a profitable client who could benefit long term from moving your services in-house.

For example, a company that does printing may approach a thriving independent publishing house. By buying a portion of the company, that publishing house will see long-term savings. Printing, which will rank as one of their higher expenses, will now be at cost. This could also open doors on some of the offerings they provide to authors. Meanwhile, the printing company addresses their current cash flow needs.

Alternative Financing Options

If the business needs cash to get it to either a break-even point or to jump to the next milestone, pursing financing makes a logical option. With traditional financing out of the question, either due to debt or the fact the business is losing money, you’re only left with alternative financing or professional money. This includes investors, private equity individuals, or angel investors. They bridge the financial gap until you weather the storm. Once the business makes that key turn, their investment pays off.


Sell a Portion of the Company

If the company is losing money, selling the entire company will be off the table. A buyer looks at the situation as though you’ve been running the business for ten years only to find yourself coming up short. They couldn’t possibly step in and turn it around.

Even with that, selling isn’t fully out of the question. You can sell a portion of the company to finance the rut. Here you may look at another company in the industry or a business looking to expand their offerings. Similar to the joint venture, it will need to be a company that will benefit long term from owning a portion of the company.

Building These Strategies Into an Exit Game Plan

We work with businesses to explore the viability of certain options and implement the strategies that make the most sense for their long-term goals. An owner that wants to stay at the helm of the company for another ten years will need to approach this challenge differently than an owner with one foot out the door. They both need a sustainable plan to weather their current financial situation.

At Exit Consulting Group, we specialize in exploring and pursing creative options for businesses in all industries. Regardless of if you are looking to exit next year, want to build out an exit strategy for a family business or just need someone to step in and structure the sale of your business to maximize your after tax profits, we work to achieve your goals.

If you are considering exiting your business or need to pursue more creative options to get your business around the current hurdles in order to prepare for a sale, contact us today.  We will help you design the best roadmap for your business.