Acquiring problems cheaply.
WHY PEOPLE DO IT
Price is low and the underlying business may be sound.
WHAT TO ESTABLISH FIRST
Why it is failing.
WHAT CAUSES ARE FIXABLE
Poor management Overhead too high Pricing errors Under-investment Cash flow mismanagement
WHAT CAUSES ARE NOT
A market that has disappeared Products no longer wanted Loss of an irreplaceable licence or relationship Reputation destroyed
WHY THAT DISTINCTION IS EVERYTHING
Buying a fixable problem is an opportunity; buying an unfixable one is buying a loss.
WHAT TO ASSESS
Whether you can actually fix what is wrong.
WHY
Identifying the problem is not the same as being able to solve it.
WHAT DISTRESSED PURCHASES RISK
Undisclosed liabilities Creditors pursuing the business Staff owed money Suppliers refusing to trade Customers already gone
WHY SUPPLIER RELATIONSHIPS MATTER
Suppliers owed money by the previous owner may refuse to supply you.
WHAT TO ESTABLISH
Whether critical suppliers will trade with the business.
WHAT STRUCTURE TO PREFER
Asset purchase, strongly.
WHY
It avoids inheriting the liabilities that caused the failure.
WHAT TO ESTABLISH ABOUT EMPLOYEES
What obligations transfer, and what is owed.
WHY
Accrued entitlements in a failing business are frequently substantial and unpaid.
WHAT TO BUDGET
Money to stabilise the business.
WHY
Distressed businesses require immediate funding, and the low price is not the total cost.
WHAT TO ESTABLISH
How long until it is viable, and whether you can fund that period.
WHAT TO OBTAIN
Legal advice, particularly on insolvency implications.
