Selling a distressed business

Looking to sell a struggling business? This article shows you what to prepare for and how to attract the right buyers, ultimately achieving the best possible outcome. We cover everything, including:

• Steps for a failing business
• Assessing your company’s value
• Preparing key documents
• Managing UK-specific legal aspects
• Financial considerations

Many failing businesses face increasing debt pressures, accelerating the need for a sale. By the end, you will feel ready to take the correct steps to sell confidently and maximise the sale value, all while minimising any potential risks.

What is a failing business? And why you are not alone

A business is considered distressed when financial or operational pressures threaten its ability to operate normally. This can arise suddenly through a liquidity crisis or develop gradually over time, raising questions over whether the firm can continue as a going concern due to any of the following:

• Cash flow pressures
• Creditor arrears
• Covenant breaches
• Ongoing performance issues

The company insolvency rate in England and Wales reached more than 52 per 10,000 firms in the 12 months to mid-2025, making it one of the highest levels seen in recent years and a clear sign of ongoing financial pressure across multiple sectors. Although monthly insolvency numbers have eased slightly at times, overall distress levels remain high, with late payments and cost pressures continuing to affect businesses nationwide.

The reality is that many business owners are facing similar challenges. The positive news is that even when a business is struggling, there are structured and often successful ways to move forward. In some cases, this includes a pre-pack arrangement – a pre-arranged sale completed immediately after administrators are appointed to preserve value and ensure continuity.

What can you do when your business is failing?

When difficulties arise, the first step is to review all available options.

Can you turn the business around?

Depending on your situation, short-term measures can make a difference in turning things around, such as improving cash management, negotiating supplier or landlord terms, or streamlining operations. This can either allow you to stay in business or even sell it later in a much better position.

Are there refinancing and insolvency routes?

You may also explore refinancing to release working capital or restructure existing debt, helping to stabilise short-term cash flow. In more serious situations, formal insolvency routes such as administration or a Company Voluntary Arrangement (CVA) may provide legal protection from creditors while a recovery or sale strategy is being developed.

A CVA enables a company to negotiate a binding repayment plan with unsecured creditors and continue trading under current management, while administration can safeguard assets and allow time for restructuring or an accelerated sale. These options can also involve a pre-pack sale, where assets are sold immediately after administrators are appointed to preserve the company’s continuity and value. A pre-pack arrangement also marks the point where recovery and sale converge – a process we explore in more detail later in this article.

Can you sell your failing business?

Importantly, a struggling business can often still be sold. If your company has a loyal customer base, intellectual property, skilled staff or valuable contracts, there is likely to be genuine buyer interest. Selling may protect more value, safeguard jobs, and create a cleaner exit than allowing the business to fail.

How to sell a failing business

Once you have identified that a sale may be the best option to take, the next step is to understand how to structure and deliver the sale effectively. In this section, we outline the key stages involved in achieving a successful outcome.

1. Assessing and valuing a distressed business

Buyers will always assess risk carefully. The first goal is to reduce uncertainty and shine a light on where value remains in your business. Start by reviewing your short-term cash flow, key liabilities, as well as customer or supplier dependencies. This may also include any debtors and creditors. Identify what still makes your business attractive to potential investors, such as recurring revenue, long-term contracts, intellectual property or niche/specialist expertise.

Expert tip: How to best value a distressed company

Obtaining an independent valuation adds credibility and ensures transparency, particularly in accelerated or pre-pack sales. This is because valuations in distress are often based on asset values, discounted earnings or revenue multiples, with deferred or performance-linked payments.

2. Choosing a suitable sale structure

There are several ways to structure the sale of a failing business. Below we explain some of the common deal structures including pre-pack admin and a look at asset sale vs share sale.

Share sale

Transfers the company in full, including its liabilities. This provides continuity for contracts and staff but may reduce upfront value.

Asset sale

The buyer acquires specific assets such as brand, contracts or stock, whereas historic liabilities usually stay with the seller, so buyers gain a cleaner, lower-risk purchase.

Pre-pack administration

A pre-agreed sale completed immediately after administrators are appointed. It offers speed and continuity but can face creditor scrutiny because the marketing window is short.

Deciding on a sale structure depends on your financial position, debt pressure and timescales. In most distressed situations, asset sales are most common because they let buyers take over viable parts of the business without past debt.

3. Preparing a struggling business for sale

When a business is in distress preparation is key to achieving a successful outcome. Factors to focus your attention on include:

Documentation

Statutory and financial records, contracts, HR information and compliance certificates should be ready for potential buyers to view.

Stability

Maintain positive service to key customers and agree realistic repayment plans with major creditors or HMRC. Stable trading reassures buyers the business can continue operating through transition.

People

Consider retention measures for essential team members and communicate clearly and transparently with staff. Retaining key employees builds continuity and supports a smoother handover.

Compliance

Ensure up-to-date licences, data protection, and health and safety requirements. Strong compliance signals low risk and prevents hidden legal issues.

A well-prepared business, especially in these areas, builds buyer confidence and strengthens negotiation leverage. It also speeds up due diligence and can help secure stronger offers.

4. Identifying the right buyers

Distressed businesses can attract a diverse range of acquirers, including:

Strategic companies

Those seeking to expand market share or access new capabilities.

Private equity or turnaround investors

They target undervalued businesses with solid fundamentals or strong customer bases where investment or restructuring can quickly restore growth.

Management teams

Often familiar with the business and motivated by continuity; they value stability and a clear path to future success.

Industry consolidators

Buyers who look for synergies such as complementary products, regional expansion or operational efficiencies.

Working with a business sales adviser such as KBS Corporate helps position your business effectively, to attract serious buyers through an accelerated, competitive process.

5. Negotiating the sale effectively

In a distressed situation, the ability to complete your sale quickly might outweigh the headline price, but here is how to achieve the best result:

Prioritise certainty

Focus on buyers with funding in place and clear completion timelines. Speed and reliability often matter more than price, as delays can reduce value or trigger creditor action.

Structure deals carefully

Combine upfront payments with deferred or performance-linked consideration. A balanced structure protects both parties and keeps the buyer engaged while rewarding performance.

Agree clear terms

Define working capital levels and any transitional support obligations precisely. Clarity prevents disputes and ensures both parties understand their obligations post-completion.

Maintain leverage

Keep alternative options open, such as another buyer or pre-pack route, to strengthen your negotiating position.

This disciplined approach helps protect business value while ensuring the transaction proceeds smoothly.

6. Managing legal and financial risks

When insolvency is probable, directors’ duties shift towards protecting creditors’ interests. To minimise any risks, it is key for professional advice to be sought early. This can help your business avoid wrongful trading or preference issues. Employment law is also critical as under TUPE regulations, employees typically transfer automatically to the buyer, so proper consultation is required.

In pre-pack or asset sales, buyers usually need to set up a new PAYE scheme and comply with strict transparency and valuation standards. Warranty and indemnity cover is often limited, meaning transactions proceed on an ‘as seen’ basis. Clear communication with staff, customers and suppliers remains vital throughout.

Work with the UK’s #1 Specialist Company Sales Adviser

Selling a distressed business requires focus, speed and access to the right buyers. KBS Corporate provides specialist support for owners navigating these complex situations. Our team manages every stage — from assessing value and preparing documentation to securing offers, negotiating completion and managing legal or financial risks.

We help business owners protect jobs where possible, preserve essential relationships and achieve the strongest outcome in challenging circumstances.

We hope you found this article useful and informative. You should now have a clear understanding of how to assess a struggling business, prepare it for sale, identify the right buyers, and manage the key legal and financial considerations in the UK.

If you feel that selling your business is the next step, we are here to help you through the whole process and ensure you achieve the best possible outcome.