Not all distressed businesses are the same. According to Howard Brownstein, President of The Brownstein Corporation, there is no way to know how bad things are for a particular distressed business until you get a full view of what problems exist. Brownstein is considered an expert in providing turnaround management and advisory services to companies, as well as their stakeholders. He serves as an independent corporate board member for both privately-owned and publicly held companies and nonprofits.
According to Brownstein, distressed businesses can represent an opportunity for buyers. In the coming months there will likely be a lot more distressed businesses on the market due to COVID-19. There could even be more distressed businesses in the next couple of years.
Why Is A Business Distressed?
You must understand the core reasons for the distress before you consider purchasing a distressed business. It is impossible to determine why the business will be valuable in the future, without a detailed understanding of why the business entered the state of distress. It is essential to determine what went wrong so that you can fix the problems.
According to Brownstein, there are two indicators that top the list of reasons why a business enters into distress. Cash flow issues are the first indicator and the second relates to management. Often it turns out that management was not thorough enough.
Here are a few questions that Brownstein suggests you ask when you begin exploring a distressed business.
- What is the business’ potential value?
- Under different circumstances, could the business be viable?
- Is there something of value beneath the problems?
It is important to gain a clear understanding of the business’ past, present and future before you decide whether or not to buy a distressed business.